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Merger Question?

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  • 16-01-2010 11:10am
    #1
    Dancingjebus3
    Closed Accounts Posts: 59 ✭✭


    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.
    Tagged:


Comments

  • Options
    #2
    [Deleted User]
    Posts: 5,589 ✭✭✭ [Deleted User]


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


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    #3
    ronbyrne2005
    Closed Accounts Posts: 3,494 ✭✭✭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.


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    #4
    [Deleted User]
    Posts: 5,589 ✭✭✭ [Deleted User]


    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.


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    #5
    ronbyrne2005
    Closed Accounts Posts: 3,494 ✭✭✭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?


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    #6
    Dancingjebus3
    Closed Accounts Posts: 59 ✭✭Dancingjebus3


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


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  • Options
    #7
    [Deleted User]
    Posts: 5,589 ✭✭✭ [Deleted User]


    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.


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    #8
    Économiste Monétaire
    Closed Accounts Posts: 2,208 ✭✭✭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.


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