The second part of the question is the most important one to get an answer to. Consider a market where initially two firms each produces a version of a differentiated good. Thedemands 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 bepositive (products are substitutes) or negative (complements). Assume firms marginal costs are equalto c>0.(a) Suppose that firms compete initially as Bertrand oligopolists. At what prices would the sellers puttheir products in the market?(b) Suppose now that you are an economic advisor (next year! (-;)) and you are approached by theCompetition Authority with the following question. "Look, these firms have filed a proposal to mergeinto a single firm. For us, the key is that consumers do not have to pay higher prices after themerger." What advice would you provide to the Competition Authority, to allow the merger or not

Let's analyze this problem step by step:

(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

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 1E

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