Compass Lexecon

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Interview Question

Analyst Interview Oakland, CA

Her last question was a "case study question" which evolved

  s speaking with me. It started off as "Say the biggest firm and the second biggest firm merge. What would be your concerns with this?" ...Vague, but I got that she meant from the standpoint of competition/antitrust litigation which comprises the majority of Compass Lexecon's work. After I listed various potential concerns that would need to be looked at, she then said "Let's say there are two scenarios: 1) You have a market with 10 firms and the largest two firms have 20% and 30% of the market share, respectively, and then the rest of the firms split the market share equally between the rest of them; and the other scenario is that you have a market with four firms and the top two have 20% and 30% of the market share and the rest of the market is shared equally between the other two. Which of these two scenarios is more troubling?" Mind you, this is said all over the phone and she is stumbling over her words trying to explain the situation that seemed like she made up on the spot. Later in the conversation, the second scenario somehow became a market comprised of "three firms" instead of the four firms she had initially described. It was obnoxious. After I gave her an answer (Scenario 1 would be more troubling) she responded with "Why?" so I explained how I reached my conclusion, and then she asked "Why would scenario 1 necessarily result in that?" So I said explained that it wouldn't "necessarily", but it could for the following reasons (yada yada yada), and then she asked me an additional question that was some derivative of "Why do you think that?" She basically beat the question into the ground trying to break down my thought process. At the end she said "I tend to agree with you that Scenario 1 would be more troubling." I felt like she was stringing the question along hoping I would make a mistake that she could zero in on.
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case study question
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I think the question was about concentration which is one of the firsts to look about the mergers. the market herfindahl index would increase by the same amount. However in the second market the concentration is already higher, then a further increase matters more. It is because the prices may go further. Additionally we can check upward pricing pressure, which I think would give the the same result. As the hypothetical internal taxing will be higher in the second case, the price pressure higher in that. It is higher because the market is less competitive. Hence I do not agree with the answers of urs.

economister on Jan 2, 2013

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