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Unformatted text preview: (c) Comment on whether the competition authority should allow the merger. Note: for the pre-merger market, once you have determined the optimal output of one ﬁrm as a function of the others’, you can use the shortcut that recognizes that in equilibrium all produce the same amount, because the ﬁrms are identical. However, this short-cut cannot be used for the post-merger analysis, since the ﬁrms are no longer symmetric, as the merged ﬁrm has lower costs, whereas the non-merged ﬁrm still has marginal costs of 36. 1 2 Acquiring a Company Consider the example in class about acquiring a company (which is also in the posted class notes on the web). Show whether there is a price at which you would want to buy the company if you expect to increase the value of the company by 20 percent so that your value is 1 . 2 V , and you believe that the current owner’s value of the enterprize V lies equally likely anywhere between 150 and 250. 2...
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- Spring '08
- Economics, constant marginal cost