In a 3-firm oligopoly market demand is given by q100-p, Ask an Expert

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In a 3-firm oligopoly, market demand is given by Q=100-P. Every firm's constant marginal cost is 40 and the firms compete with quantities. Suppose that two of the firms merge.

a) Measure premerger and postmerger profits for the firms. Is the merger profitable?

b) Suppose that the merger changes the marginal cost of production. What must the marginal cost be postmerger, in order for the merger to be exactly profit-neutral?

c) Comment on how reasonable Cournot models of this type are to analyze horizontal mergers? If we see mergers in markets where we have good reason to think that competition is in quantities, what should we finish?

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