(b) Suppose now that you are an economic advisor (next year! (-;)) and you are approached by the Competition Authority with the following question. "Look, these firms have filed a proposal to merge into a single firm. For us, the key is that consumers do not have to pay higher prices after the merger." What advice would you provide to the Competition Authority, to allow the merger or not
(b) Suppose now that you are an economic advisor (next year! (-;)) and you are approached by the Competition Authority with the following question. "Look, these firms have filed a proposal to merge into a single firm. For us, the key is that consumers do not have to pay higher prices after the merger." What advice would you provide to the Competition Authority, to allow the merger or not
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
The second part of the question is the most important one to get an answer to.
Transcribed Image Text:Consider a market where initially two firms each produces a version of a differentiated good. The
demands for these goods are given by: qi (Pi, Pj) = a - bpi gaj, where i, j = 1, 2, i ‡ j.
The parameters satisfy a > c(b − g), b>0, c> 0 and |b| > |g|. In principle parameter g can be
positive (products are substitutes) or negative (complements). Assume firms marginal costs are equal
to c>0.
(a) Suppose that firms compete initially as Bertrand oligopolists. At what prices would the sellers put
their products in the market?
(b) Suppose now that you are an economic advisor (next year! (-;)) and you are approached by the
Competition Authority with the following question. "Look, these firms have filed a proposal to merge
into a single firm. For us, the key is that consumers do not have to pay higher prices after the
merger." What advice would you provide to the Competition Authority, to allow the merger or not
Expert Solution
Step 1: Introduction.
Let's analyze this problem step by step:
Step by step
Solved in 4 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education