Compass Lexecon Interview Question

I have heard that Compass Lexecon asked this question in a phone interview. I have an upcoming interview there and want to prepare. I realize there is probably a low chance of me getting this question, but it is bugging me that I can't figure it out. I feel I have a pretty good grasp on basic econ and industrial organization, yet I can't decide on a sinario or walk through any reasoning. Any input would be much appreciated!

"Say the biggest firm and the second biggest firm merge. In scenario 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. In scenario 2, there is 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?"

Apparently scenario 1 is supposed to be more troubling. I was leaning more towards scenario 2 though.

 
Best Response

Looking at HHI the first scenario takes it from a moderately concentrated market to a highly concentrated market, while the second simply remains a highly concentrated market (albeit more concentrated in both scenarios). Maybe they are assuming that the new increase in market share will allow the company in situation 1 to exert more bargaining power over the suppliers / customers, thus leading to higher prices which is bad for the consumer (why the DOJ would care). Although I'm with you thinking that scenario 2 is more troubling as it has a higher HHI (therefore the market is less rivalrous, making collusion/price fixing easier. Worse for the consumer).

Anyway, just my 2 cents

 

May be substantially harder for the other 8 firms in scenario 1 to compete with only 6.25% market share each, compared to the newly merged firm with 50%.

Scenario 2 limits options, but the firms are closer in market share and are likely able to compete more evenly with each other. There is still competition in the marketplace, albeit not much.

...
 

Here is the Job Description if it helps:

As part of our team-oriented approach, Analysts work closely with staff economists to provide in-depth economic analysis of the relevant issues in each matter. Analysts work on cases involving a broad spectrum of matters related to economics – providing critical insight in legal and regulatory proceedings, strategic decisions and public policy debates. While each project presents a different set of challenges, Analysts can generally expect to perform extensive data analyses, conduct industry research, and review case evidence.

 
dreamtheater12:
I have an interview at Compass Lexecon next week. Please advise as to how should i prepare. What type of questions should I expect? Will the WSO Consulting case interview guide be useful? I would appreciate if people would share their interview experiences at Compass or similar firms.
Hey how did ur interview go? I couldnt reply then cause I had mine after your time. I am having a face to face interview soon, have you already had that? and if so how did it go?
 

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