Question

According to some economists, horizontal merger may not always be profitable even though they reduce the number of suppliers. For example, assume a three-firm industry in which the firms behave according to the Cournot model. Let market demadn be Q = 20 −P. Each firm has a constant average cost of $4. Now assume that a merger reduces the number of firms to two. Calculate the combined profits of the two firms premerger, and then calculate the profit of the combined firm in the postmerger situations – a Cournot duopoly. Is a merger that converts the market structure from a triopoly to duoply profitable? What if all three firms merger that would create a monopoly?

Answer 1

as a cartel than 1-go-de de Os of 3 forms ,- act competitivity Il = dooi-0,2-0, O2 & Os - 400 VIT 20-201-02-03 - 400 Similarly for = 16-01-0s) a (03-16-0, 002 101 = 16 02-03 2 odi 2 2 solving di = O2=0₂=4 p=8 T1=112= 3 = 16 tobal prost = 48 If they act as a Cournot duopoly III = 0,2-0, ²-a de -40 STIL go-20, -de-4=0 (chia 16 de jo Similads (or - 16-01) 2 2 solwy d.-02 den 16- [16] --7 16 to, a 4 2 torul II = 56-888 0,16 5.333 - Price – 9.333 3 The Tiz=(5-3332 – 28.4444 Thus combined profs of muger joins are lisses/lower post merger compored to pre merger. If they all 3 act = 20-P P-20- ای - MR-go-20 go 20 cy MC=4 Sony = 4 Price 12 monopoly proht / merger profs = 818)=64