3. Firm A and Firm B are two firms in an industry. Firm A and Firm B are planning to merge. (a) Firm A and Firm B are Bertrand duopolists with identical and constant marginal costs. Post-merger marginal cost is lower than pre-merger. Use a figure that includes a downward-sloping linear market demand to show how the merger of Firm A and Firm B will lead to anticompetitive losses as well as cost-savings. (b) Firm A and Firm B are Cournot duopolists with identical marginal costs. Post- merger marginal cost is the same as pre-merger. Use a figure that includes a downward-sloping linear market demand to show how the merger of Firm A and Firm B will lead to anticompetitive losses. (c) Firm A and Firm B are Stackelberg competitors with identical marginal costs. Post-merger marginal cost is the same as pre-merger. Firm A is the Stackelberg leader. Use a figure that includes a downward-sloping linear market demand to show how the merger of Firm A and Firm B will lead to anticompetitive losses. If the demand and cost conditions are the same for the Cournot case in (b) and this Stackelberg case, compare the size of the anticompetitive loss in the two situations. Explain. (d) Firms A and B and C are Cournot competitors with identical marginal costs. Post-merger (A merges with B), marginal cost of the merged firm is lower than pre-merger. Post-merger, the merged firm will act as a Stackelberg leader and Firm C (not involved in the merger) will act as a Stackelberg follower. Use a figure that includes a downward-sloping linear market demand to show any anticompetitive losses and any efficiency gains associated with the merger of Firm A and Firm B.
3. Firm A and Firm B are two firms in an industry. Firm A and Firm B are planning to merge. (a) Firm A and Firm B are Bertrand duopolists with identical and constant marginal costs. Post-merger marginal cost is lower than pre-merger. Use a figure that includes a downward-sloping linear market demand to show how the merger of Firm A and Firm B will lead to anticompetitive losses as well as cost-savings. (b) Firm A and Firm B are Cournot duopolists with identical marginal costs. Post- merger marginal cost is the same as pre-merger. Use a figure that includes a downward-sloping linear market demand to show how the merger of Firm A and Firm B will lead to anticompetitive losses. (c) Firm A and Firm B are Stackelberg competitors with identical marginal costs. Post-merger marginal cost is the same as pre-merger. Firm A is the Stackelberg leader. Use a figure that includes a downward-sloping linear market demand to show how the merger of Firm A and Firm B will lead to anticompetitive losses. If the demand and cost conditions are the same for the Cournot case in (b) and this Stackelberg case, compare the size of the anticompetitive loss in the two situations. Explain. (d) Firms A and B and C are Cournot competitors with identical marginal costs. Post-merger (A merges with B), marginal cost of the merged firm is lower than pre-merger. Post-merger, the merged firm will act as a Stackelberg leader and Firm C (not involved in the merger) will act as a Stackelberg follower. Use a figure that includes a downward-sloping linear market demand to show any anticompetitive losses and any efficiency gains associated with the merger of Firm A and Firm B.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:3. Firm A and Firm B are two firms in an industry. Firm A and Firm B are planning to
merge.
(a) Firm A and Firm B are Bertrand duopolists with identical and constant marginal
costs. Post-merger marginal cost is lower than pre-merger. Use a figure that
includes a downward-sloping linear market demand to show how the merger of
Firm A and Firm B will lead to anticompetitive losses as well as cost-savings.
(b) Firm A and Firm B are Cournot duopolists with identical marginal costs. Post-
merger marginal cost is the same as pre-merger. Use a figure that includes a
downward-sloping linear market demand to show how the merger of Firm A and
Firm B will lead to anticompetitive losses.
(c) Firm A and Firm B are Stackelberg competitors with identical marginal costs.
Post-merger marginal cost is the same as pre-merger. Firm A is the Stackelberg
leader. Use a figure that includes a downward-sloping linear market demand to
show how the merger of Firm A and Firm B will lead to anticompetitive losses.
If the demand and cost conditions are the same for the Cournot case in (b) and
this Stackelberg case, compare the size of the anticompetitive loss in the two
situations. Explain.
(d) Firms A and B and C are Cournot competitors with identical marginal costs.
Post-merger (A merges with B), marginal cost of the merged firm is lower than
pre-merger. Post-merger, the merged firm will act as a Stackelberg leader and
Firm C (not involved in the merger) will act as a Stackelberg follower. Use
a figure that includes a downward-sloping linear market demand to show any
anticompetitive losses and any efficiency gains associated with the merger of Firm
A and Firm B.
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