Question

Consider n identical firms, which produce a perfectly homogenous good at constant marginal cost c. The market demand is given by p=a-Q, where Q is the total output produced in the industry. The strategic variable of the firms is output (Cournot game). (a) Find equilibrium outputs and profits in a pre-merger situation. That is when all the n firms are independent. (b) Consider now a merger between m+1 firms, and find equilibrium output and profit for each independent firm. (c) Show that outsiders always gain from a merger. (d) Show that a merger to monopoly is always profitable for the merging firms. (e) Take n=10 and show that a merger is profitable only if m+1>=9. (Assume that n is an integer.) (f) The above example shows that a profitable merger between Cournot firms without synergy requires that the merging parties have a very large pre-merger combined output level. Explain the intuition why a merger between Cournot firms is almost always unprofitable. (g) By introducing different assumptions in the basic Cournot model, one can have profitable mergers for insiders. Discuss two of these conditions. 1. Consider n identical firms, which produce a perfectly homogenous good at constant marginal cost c. The market demand is given by p = a -Q, where Q is the total output produced in the industry. The strategic variable of the firms is output (Cournot game) a) Find equilibrium outputs and profits in a pre-merger situation. That is when all the n firms are independent. b) Consider now a merger between m + 1 firms, and find equilibrium output and profit for each independent firm. (c) Show that outsiders always gain from a merger. d) Show that a merger to monopoly is always profitable for the merging firms. (e) Take n = 10 and show that a merger is profitable only if m + 1 > 9. (Assume that n is an integer.) f The above example shows that a profitable merger between Cournot firms without synergy requires that the merging parties have a very large pre-merger combined output level. Explain the intuition why a merger between Cournot firms is almost always unprofitable. g) By introducing different assumptions in the basic Cournot model, one can have profitable mergers for insiders. Discuss two of these conditions.

          Consider n identical firms, which produce a perfectly homogenous good at constant
marginal cost c. The market demand is given by p=a-Q, where Q is the total output
produced in the industry. The strategic variable of the firms is output (Cournot game).
(a) Find equilibrium outputs and profits in a pre-merger situation. That is when all
the n firms are independent.
(b) Consider now a merger between m+1 firms, and find equilibrium output and
profit for each independent firm.
(c) Show that outsiders always gain from a merger.
(d) Show that a merger to monopoly is always profitable for the merging firms.
(e) Take n=10 and show that a merger is profitable only if m+1>=9. (Assume
that n is an integer.)
(f) The above example shows that a profitable merger between Cournot firms without
synergy requires that the merging parties have a very large pre-merger combined
output level. Explain the intuition why a merger between Cournot firms is almost
always unprofitable.
(g) By introducing different assumptions in the basic Cournot model, one can have
profitable mergers for insiders. Discuss two of these conditions.
1. Consider n identical firms, which produce a perfectly homogenous good at constant marginal cost c. The market demand is given by p = a -Q, where Q is the total output produced in the industry. The strategic variable of the firms is output (Cournot game)
a) Find equilibrium outputs and profits in a pre-merger situation. That is when all the n firms are independent.
b) Consider now a merger between m + 1 firms, and find equilibrium output and profit for each independent firm.
(c) Show that outsiders always gain from a merger.
d) Show that a merger to monopoly is always profitable for the merging firms.
(e) Take n = 10 and show that a merger is profitable only if m + 1 > 9. (Assume that n is an integer.)
f The above example shows that a profitable merger between Cournot firms without synergy requires that the merging parties have a very large pre-merger combined output level. Explain the intuition why a merger between Cournot firms is almost always unprofitable.
g) By introducing different assumptions in the basic Cournot model, one can have profitable mergers for insiders. Discuss two of these conditions.

consider n identical firms which produce a perfectly homogenous good at constant marginal cost c the market demand is given by pa q where q is the total output produced in the industry the s 22548

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