The aim of the project was to analyze the competitive effects of a proposed merger between two healthcare diagnostic companies using FTC & DoJ’s Horizontal Merger Guideline. • Performed HHI analysis and regression analysis to find market concentration & price elasticity of product market • Organized the merging entities’ raw sales data and ultimately determined the merger to be anticompetitive

1. Che Wei (Jonathan) Tsao & Jonathon Sine
Cornerstone Research USC Case Competition
Executive Summary:
Cornerstone Research has analyzed the effects stemming from the proposed merger between Wellness Solutions
(“WS”) and Holistic Health (“HH”) and come to a decision regarding the efficacy of the merger. We find that
the proposed merger between Wellness Solutions and Holistic Health will have substantial and overwhelmingly
anticompetitive repercussions on the blood glucose meter industry, and thus recommend that the Federal Trade
Commission and Department of Justice reject the proposed merger.
Analysis:
Market Definition
We define our market of interest narrowly, focusing on the segment of the health care diagnostics market
involving blood glucose meters. WS and HH both operate in the healthcare diagnostics market, but the majority
of each company’s revenue is derived from sales of blood glucose meters. The relevant markets exist at regional
levels, consisting of Pacific, Midwest, Southeast, and Northeast.
Competitive Landscape
At a national level the market for blood glucose meters appears to be un-concentrated, with an overall (pre-
merger) HHI of ~706 (Appendix 1). The market for blood glucose meters is comprised of eight major firms and
a significant number of regional firms. Moreover, regional markets in the Southeast and Northeast appear to be
un-concentrated, with HHI scores of 1054 and 918 respectively, while markets in the Midwest and Pacific
appear to be moderately concentrated, scoring 1,586 and 2,318 respectively.
Market Share & Concentration
Post Merger
Assuming that HH and WS are able to combine their respective market shares upon merging, we would expect
a national increase in HHI of ~108. However, in the Midwest and the Pacific, we would expect HHI scores to
increase by 504 and 440 respectively, raising serious concerns that the merger would substantially increase
market power in this regions. Furthermore, the merger would result in a change in categorization for the Pacific,
from moderately concentrated to highly concentrated.
Red flags raised by the increase in HHI in the Midwest and Pacific regions led us to compare the pricing habits
of HH and WS on blood glucose meters in regional markets. Our data indicate that HH and WS both engage in
pricing discrimination, as price levels and gross revenues for both firms in the Midwest (Appendix 2) are
substantially higher compared to the less concentrated Northeastern markets (Appendix 3). To us this is a strong
indicator that these firms may intend to further increase the relative price of their products if allowed to gain
greater market power.
Unilateral Effects
Bargaining & Auction
An important characteristic of the blood glucose market is the ability of buyers to bargain, playing sellers
against one another. If HH and WS were allowed to merge, buyers bargaining options would be substantially
reduced, an effect that is inherently anticompetitive given the substantial overlap of buyers in the market. The
impact would be particularly acute in the Midwest and Pacific regions due to the more pronounced oligopolistic
market characteristics present therein (Appendix 4).

2. Capacity & Output
The demand faced by firms in the blood glucose meter market appears to be price inelastic. Indeed, regression
analyses examining the effect of price on quantity sold for both HH and WS corroborate this, as there seems to
be no determinable effect of price on quantity sold within our sample data, a conclusion that makes sense given
the utility and importance of this product in consumers’ lives, but one that also has troubling implications that
will be expanded upon below (Appendix 5).
Coordinated Effects
We also recommend the Agencies to challenge the merger, as the relevant markets HH and WS operate in are
highly vulnerable to coordinated practices.
1. A market is more vulnerable to coordinated conduct if significant competitive initiatives can be
promptly observed by the firm’s rivals. As seen in (Appendix 4), the average selling price of blood
glucose meters by WS and HH are relatively similar, and price discrimination only occurs in different
geographic regions. This means that price transparency and transparency regarding the identities of the
firms are both high, indicating vulnerability to coordinated conduct.
2. The Midwest market is also highly vulnerable to coordinated effects as the joint entity of WS and HH
will have no significant competitors and their HHI will comprise nearly 50% of the entire Midwest
market (Appendix 2). With no significant competitors, the proposed merging entities will be less
mindful of likely responses from its smaller competitors, elevating the vulnerability of coordinated
effects.
3. As demonstrated above, demand in this market appears to be price inelastic. Price inelasticity makes
coordinated pricing behavior more lucrative for participating firms and thus more likely to occur in a
market that could be vulnerable to such practices.
Lastly, we found credible basis in which we can conclude that the merger may enhance the vulnerability of
coordinated conducts.
Although the HHI index, specifically in the West Coast region, is already high before the merger, its significant
440 points increase of HHI post merger not only elevates its classification to a highly concentrated market, but
also enhances the merging entities’ market power. Moreover, as HH is headquartered in Palo Alto, its cost of
good sold is lower than that of WS’s in the West Coast region seen in appendix 3, allowing the likelihood of
coordinated effects to increase dramatically after the proposed merger on the grounds that HH is unlikely to
share its competitive advantage with WS before they merge.
Looking at the Midwest, the region is already highly vulnerable to coordinated effects as WS and HH, seen in
appendix 3, serve only retailers and healthcare providers respectively. The benefits from coordinating allow
both entities to benefit from their different buyer segments.
Other Information:
First, we would have benefitted from greater access to information regarding the intentions of HH and WS
going into the merger, such as information on consumer input, past behavior patterns, and cost structures of the
firms. Second, being able to derive a diversion ratio, or fraction of sales lost due to price increase, through a
SSNIP test may have given us a more full understanding of how price increases affect a company’s sales.
Finally, information on the quality and heterogeneity of blood glucose meters offered by the various firms
would have given us further insights into the competitive landscape of the industry.

3. Appendix
Appendix 1, Competitors in the U.S. Blood Glucose Meter Market, Nationwide Market Share & HHI Index (Pre
& Post Merger)
Appendix 2, Competitors in the U.S. Blood Glucose Meter Market, Geographic Region Market Share & HHI
Index (Pre) continued on next page
Market Share
Company Nationwide HHI Index
Basick Devices 7.51 56.46
Bear Health 7.92 62.68
Diagknows Diagnostics 11.85 140.44
Holistic Health 5.90 34.81
Perspective Health 10.99 120.86
ThriveMetrix 5.14 26.46
Wellness Solutions 9.18 84.24
Wilson & Wilson 10.24 104.80
Local Firm 1 3.08 9.46
Local Firm 2 4.79 22.95
Local Firm 3 1.82 3.30
Local Firm 4 2.32 5.38
Local Firm 5 1.82 3.30
Local Firm 6 1.82 3.30
Local Firm 7 1.82 3.30
Local Firm 8 1.82 3.30
Local Firm 9 1.82 3.30
Local Firm 10 1.82 3.30
Local Firm 11 1.82 3.30
Local Firm 12 1.71 2.94
Local Firm 13 1.71 2.94
Local Firm 14 1.56 2.44
Local Firm 15 1.56 2.44
Sum 100.00 705.67
Pre Merger
Competitors in the U.S. Blood Glucose Meter Market & HHI Index (millions)
Market Share
Company Nationwide HHI Index
Basick Devices 7.51 56.46
Bear Health 7.92 62.68
Diagknows Diagnostics 11.85 140.44
Holistic Health + Wellness Solutions 15.08 227.35
Perspective Health 10.99 120.86
ThriveMetrix 5.14 26.46
Wilson & Wilson 10.24 104.80
Local Firm 1 3.08 9.46
Local Firm 2 4.79 22.95
Local Firm 3 1.82 3.30
Local Firm 4 2.32 5.38
Local Firm 5 1.82 3.30
Local Firm 6 1.82 3.30
Local Firm 7 1.82 3.30
Local Firm 8 1.82 3.30
Local Firm 9 1.82 3.30
Local Firm 10 1.82 3.30
Local Firm 11 1.82 3.30
Local Firm 12 1.71 2.94
Local Firm 13 1.71 2.94
Local Firm 14 1.56 2.44
Local Firm 15 1.56 2.44
Sum 100.00 813.97
Post Merger
Competitors in the U.S. Blood Glucose Meter Market & HHI Index (millions)
Pacific/Western Midwest Southeast Northeast
Company Market Share HHI Index Market Share5 HHI Index2 Market Share4 HHI Index3 Market Share2 HHI Index4
Basick Devices 7 49 2 4 8 64 10 100
Bear Health 6 36 4 16 6 36 11 121
Diagknows Diagnostics 0 0 3 9 16 256 16 256
Holistic Health 10 100 14 196 6 36 5 25
Perspective Health 0 0 21 441 5 25 14 196
ThriveMetrix 14 196 3 9 5 25 6 36
Wellness Solutions 22 484 18 324 15 225 8 64
Wilson & Wilson 38 1444 24 576 18 324 8 64
Local Firm 1 3 9 1 1 6 36 2 4
Local Firm 2 0 0 1 1 4 16 6 36
Local Firm 3 0 0 1 1 1 1 1 1
Local Firm 4 0 0 1 1 1 1 2 4
Local Firm 5 0 0 1 1 1 1 1 1
Local Firm 6 0 0 1 1 1 1 1 1
Local Firm 7 0 0 1 1 1 1 1 1
Local Firm 8 0 0 1 1 1 1 1 1
Local Firm 9 0 0 1 1 1 1 1 1
Local Firm 10 0 0 1 1 1 1 1 1
Local Firm 11 0 0 1 1 1 1 1 1
Local Firm 12 0 0 0 0 1 1 1 1
Local Firm 13 0 0 0 0 1 1 1 1
Local Firm 14 0 0 0 0 0 0 1 1
Local Firm 15 0 0 0 0 0 0 1 1
sum 100 2318 100 1586 100 1054 100 918
Pacific/Western Midwest Southeast Northeast
Company Market Share HHI Index Market Share5 HHI Index2 Market Share4 HHI Index3 Market Share2 HHI Index4
HH + WS 32 1024 32 1024 21 441 13 169
Basick Devices 7 49 2 4 8 64 10 100
Bear Health 6 36 4 16 6 36 11 121
Diagknows Diagnostics 0 0 3 9 16 256 16 256
Perspective Health 0 0 21 441 5 25 14 196
ThriveMetrix 14 196 3 9 5 25 6 36
Pre Merger
Regional Market Share & HHI Index (millions)
Post Merger

4. Appendix 2 continued, Competitors in the U.S. Blood Glucose Meter Market, Geographic Region Market Share
& HHI Index (Post Merger)
Appendix 3 Marginal Revenue & Cost of WS & HH (continued on next page)
Local Firm 7 0 0 1 1 1 1 1 1
Local Firm 8 0 0 1 1 1 1 1 1
Local Firm 9 0 0 1 1 1 1 1 1
Local Firm 10 0 0 1 1 1 1 1 1
Local Firm 11 0 0 1 1 1 1 1 1
Local Firm 12 0 0 0 0 1 1 1 1
Local Firm 13 0 0 0 0 1 1 1 1
Local Firm 14 0 0 0 0 0 0 1 1
Local Firm 15 0 0 0 0 0 0 1 1
sum 100 2318 100 1586 100 1054 100 918
Pacific/Western Midwest Southeast Northeast
Company Market Share HHI Index Market Share5 HHI Index2 Market Share4 HHI Index3 Market Share2 HHI Index4
HH + WS 32 1024 32 1024 21 441 13 169
Basick Devices 7 49 2 4 8 64 10 100
Bear Health 6 36 4 16 6 36 11 121
Diagknows Diagnostics 0 0 3 9 16 256 16 256
Perspective Health 0 0 21 441 5 25 14 196
ThriveMetrix 14 196 3 9 5 25 6 36
Wilson & Wilson 38 1444 24 576 18 324 8 64
Local Firm 1 3 9 1 1 6 36 2 4
Local Firm 2 0 0 1 1 4 16 6 36
Local Firm 3 0 0 1 1 1 1 1 1
Local Firm 4 0 0 1 1 1 1 2 4
Local Firm 5 0 0 1 1 1 1 1 1
Local Firm 6 0 0 1 1 1 1 1 1
Local Firm 7 0 0 1 1 1 1 1 1
Local Firm 8 0 0 1 1 1 1 1 1
Local Firm 9 0 0 1 1 1 1 1 1
Local Firm 10 0 0 1 1 1 1 1 1
Local Firm 11 0 0 1 1 1 1 1 1
Local Firm 12 0 0 0 0 1 1 1 1
Local Firm 13 0 0 0 0 1 1 1 1
Local Firm 14 0 0 0 0 0 0 1 1
Local Firm 15 0 0 0 0 0 0 1 1
Sum 100 2758 100 2090 100 1234 100 998
Post Merger
Values
Row Labels Sum of units_sold Average of Gross Margin % Average of COGS Average of price_sold
Mid-West 279378 15.93% 236.33 281.29
Retailer 279378 15.93% 236.33 281.29
Northeast 574553 11.25% 216.28 243.98
Healthcare Provider 442285 11.25% 216.28 243.97
Retailer 132268 11.27% 216.28 244.02
Southeast 305084 12.73% 225.12 257.95
Healthcare Provider 217959 12.72% 225.12 257.93
Retailer 87125 12.75% 225.12 258.00
West Coast 438697 12.29% 230.33 262.59
Healthcare Provider 219738 12.26% 230.33 262.50
Retailer 218959 12.32% 230.33 262.68
Grand Total 1597712 12.41% 224.59 256.72
WS Sales

5. Appendix 3 continued
Appendix 4, Overlapping Customer Sales of WS & HH, continued on next page
Values
Row Labels Sum of qty Average of Gross Margin % Average of unit_cost Average of transaction_price
Midwest 174116 17.64% 232.33 282.50
Healthcare Provider 174116 17.64% 232.33 282.50
Northeast 365032 10.40% 215.33 240.96
Healthcare Provider 281308 10.45% 215.33 241.09
Retailer 83724 10.24% 215.33 240.54
Southeast 124974 12.44% 221.67 253.30
Healthcare Provider 89025 12.42% 221.67 253.24
Retailer 35949 12.49% 221.67 253.43
West Coast 199068 17.44% 219.00 265.58
Healthcare Provider 100464 17.52% 219.00 265.85
Retailer 98604 17.36% 219.00 265.32
Grand Total 863190 13.74% 219.72 255.63
HH Sales
Values
Row Labels Sum of units_sold Average of COGS Average of price_sold Average of Gross Margin Average of Gross Margin %
Northeast 309852 216.28 244.06 27.78 0.11
Healthcare Provider 265262 216.28 244.09 27.81 0.11
JI20398 44266 216.28 244.33 28.05 0.11
LL22355 43966 216.28 244.20 27.92 0.11
QW56895 43984 216.28 244.17 27.89 0.11
RS29392 44822 216.28 244.19 27.91 0.11
SD61301 44191 216.28 243.35 27.07 0.11
SS93393 44033 216.28 244.31 28.03 0.11
Retailer 44590 216.28 243.88 27.60 0.11
KN84849 44590 216.28 243.88 27.60 0.11
Southeast 174433 225.12 257.93 32.81 0.13
Healthcare Provider 87308 225.12 257.86 32.74 0.13
UY59785 43765 225.12 257.45 32.33 0.13
WI38374 43543 225.12 258.27 33.15 0.13
Retailer 87125 225.12 258.00 32.88 0.13
ST20938 43550 225.12 257.94 32.83 0.13
TW29382 43575 225.12 258.06 32.94 0.13
West Coast 306541 230.33 262.58 32.24 0.12
Healthcare Provider 175803 230.33 262.60 32.27 0.12
BH66216 43928 230.33 262.89 32.56 0.12
DC54863 43824 230.33 262.42 32.09 0.12
DI41455 44007 230.33 262.62 32.29 0.12
EB26526 44044 230.33 262.47 32.14 0.12
Retailer 130738 230.33 262.54 32.21 0.12
AJ93848 43614 230.33 262.56 32.23 0.12
AL30JS 43369 230.33 262.78 32.45 0.12
AU44452 43755 230.33 262.29 31.96 0.12
Grand Total 790826 223.71 254.34 30.63 0.12
WS Sales

6. Appendix 4 continued, Overlapping Customer Sales of WS & HH
Appendix 5, WS & HH Regression Analysis, continued on next page
Values
Row Labels Sum of qty Average of unit_cost Average of transaction_price Average of Gross Margin Average of Gross Margin %
Northeast 197471 215.33 240.93 25.60 0.10
Healthcare Provider 169263 215.33 241.14 25.81 0.10
JI20398 27351 215.33 240.18 24.85 0.10
LL22355 28401 215.33 241.82 26.48 0.11
QW56895 27916 215.33 241.53 26.19 0.11
RS29392 28458 215.33 240.53 25.19 0.10
SD61301 28314 215.33 241.57 26.24 0.11
SS93393 28823 215.33 241.21 25.88 0.10
Retailer 28208 215.33 239.67 24.34 0.10
KN84849 28208 215.33 239.67 24.34 0.10
Southeast 71706 221.67 253.33 31.66 0.12
Healthcare Provider 35757 221.67 253.22 31.55 0.12
UY59785 17913 221.67 253.21 31.55 0.12
WI38374 17844 221.67 253.22 31.56 0.12
Retailer 35949 221.67 253.43 31.77 0.12
ST20938 18163 221.67 253.15 31.48 0.12
TW29382 17786 221.67 253.72 32.05 0.13
West Coast 139458 219.00 265.59 46.59 0.17
Healthcare Provider 80224 219.00 265.88 46.88 0.18
BH66216 20180 219.00 265.84 46.84 0.18
DC54863 19940 219.00 266.34 47.34 0.18
DI41455 19932 219.00 265.78 46.78 0.17
EB26526 20172 219.00 265.54 46.54 0.17
Retailer 59234 219.00 265.21 46.21 0.17
AJ93848 20024 219.00 265.07 46.07 0.17
AL30JS 19753 219.00 265.80 46.80 0.18
AU44452 19457 219.00 264.76 45.76 0.17
Grand Total 408635 218.17 253.27 35.11 0.14
HH Sales
Regression Statistics
Multiple R 0.035856044
R Square 0.001285656
Adjusted R Square -0.00072383
Standard Error 29.6747321
Observations 499
ANOVA
df SS MS F Significance F
Regression 1 563.3956047 563.3956047 0.639793525 0.424167712
Residual 497 437653.0934 880.5897251
Total 498 438216.489
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 416.6439786 44.07937088 9.452130788 1.30699E-19 330.0390957 503.2488614 330.0390957 503.2488614
Price 0.156705086 0.195912962 0.799870943 0.424167712 -0.228214635 0.541624806 -0.228214635 0.541624806
WS Regression Analysis

7. Appendix 5 continued, WS & HH Regression Analysis
Regression Statistics
Multiple R 0.016044746
R Square 0.000257434
Adjusted R Square -0.001754121
Standard Error 20.3051562
Observations 499
ANOVA
df SS MS F Significance F
Regression 1 52.76507518 52.76507518 0.127977579 0.720690112
Residual 497 204912.786 412.2993683
Total 498 204965.5511
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 136.0180047 23.17584793 5.868954834 8.02036E-09 90.48328964 181.5527198 90.48328964 181.5527198
Price -0.032438904 0.090677434 -0.357739541 0.720690112 -0.210597266 0.145719459 -0.210597266 0.145719459
HH Regression Analysis