2. Consider a standard Cournot triopoly model, i.e., inverse demand p(Q) = a - bQ, where Q = -1 9₁ and a, b>0, output cost function ci(qi) = cqi for i = 1, 2, 3, c> 0. qi (a) Find the symmetric equilibrium output (q*), price (p*), and profit levels (*). (b) Suppose that firms 1 and 3 merge horizontally, i.e., form a single larger firm, call it firm 1, and compete against firm 2 as in a Cournot duopoly. The newly formed firm 1 and firm 2 have identical cost functions, which are the ci(qi) discussed above, and face the same inverse market demand p(Q). Assume that firm 1 and firm 3 split equilibrium profits. Find for i = 1, 2, 3 and compare with part (a). Are firm 1 and firm 3 better-off after the merge?

2. Consider a standard Cournot triopoly model, i.e., inverse demand p(Q) = a - bQ, where Q = -1 9₁ and a, b>0, output cost function ci(qi) = cqi for i = 1, 2, 3, c> 0. qi (a) Find the symmetric equilibrium output (q), price (p), and profit levels (*). (b) Suppose that firms 1 and 3 merge horizontally, i.e., form a single larger firm, call it firm 1, and compete against firm 2 as in a Cournot duopoly. The newly formed firm 1 and firm 2 have identical cost functions, which are the ci(qi) discussed above, and face the same inverse market demand p(Q). Assume that firm 1 and firm 3 split equilibrium profits. Find for i = 1, 2, 3 and compare with part (a). Are firm 1 and firm 3 better-off after the merge?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter13: best-practice Tactics: Game Theory

Section: Chapter Questions

Problem 6E

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