Merger Question?

Dancingjebus3

in a cournot situation Suppose all 3 firms of the industry merged. can this merger be allowed and also will a merger under cournot when firms have identical costs go head, need help with this as soon as possible please??

Additional:
Firms are producing identical goods
firms have identical marginal costs

These are all theory based questions for college so just basic answer would be great as I know a real world situation would be far more complex.

You are going to need to give a lot more detail there..

ronbyrne2005

Not familar with it but according to wikipedia
http://en.wikipedia.org/wiki/Cournot_competition#Implications
Would be anti consumer and cant see EU allowing it. Not too up on this thing though.

Impose a cost function from the above information and solve for the case under comeptition. Then solve as if there were only one firm. Compare the results and that gives you a good basis for an answer.

ronbyrne2005

Not sure but think the mariginal cost point is important, the 3 firms are effectively a monopoly now and if merged situation would be effectively the same as profit maximising would lead them as merged firm to maintain output and price at same levels?

Dancingjebus3

Thanks for all the answers, appreciate it. more answers are welcome of course though

ronbyrne2005

ronbyrne2005 wrote: »

Not sure but think the mariginal cost point is important, the 3 firms are effectively a monopoly now and if merged situation would be effectively the same as profit maximising would lead them as merged firm to maintain output and price at same levels?

Not quite - it just makes the algebra simpler. Under Cournot, output of one firm is a function of expected output of the other two. So its not the same as a monopoly.

Économiste Monétaire

"Can this merger be allowed [?]" Not really enough information to answer that. You could say that consumer surplus (CS) will be lower under monopoly price & quantity. Do the maths, you'll probably get an answer of [latex] \displaystyle CS_{PC} > CS_{Stackelberg} > CS_{Cournot} > CS_{Monop} [/latex]. On the question of whether the merger will go ahead, look at producer surplus under each regime.