ch15 - Chapter 15 Horizontal Mergers Learning Objectives...

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Chapter 15: Horizontal Mergers Learning Objectives Students will learn to: 1. Explain the reasons behind mergers. Some of these have to do with increased efficiency and reduced costs of production and marketing. Others relate to the ability to enhance product quality or services. 2. Differentiate horizontal, vertical, complementary, and conglomerate mergers. Horizontal mergers take place between firms that produce or consume substitute goods at the same point in the vertical chain. Vertical mergers typically take place between firms at different stages in the chain or between firms at the same stage that produce or consume complementary goods. Outputs at one stage that are inputs at another stage are obviously complements in production. Conglomerate mergers involve the combination of firms without a clear substitute or a clear complementary relationship. 3. Analyze horizontal merger using a simple Cournot model. 4. Explain why there is a merger paradox in the Cournot merger model, why it makes some intuitive sense, and provide a reasoned discussion of the weaknesses of the model. 5. Set up and solve a simple three-firm Cournot model and then resolve the model assuming two of the firms merge leaving a two-firm duopoly. The student will be able to explain the merger paradox using this simple merger model. 6. Show how the results of the Cournot merger model differ if the firms involved have differing fixed or marginal costs either before or after the mergers, i.e. show that potential cost savings matter. 7. Explain why the Stackelberg merger model may be more realistic than the Cournot merger model. The student will be able to give reasons why a newly merged firm may be able to act as a Stackelberg leader. 8. Differentiate the conclusions of the alternative horizontal merger models (Cournot and multiple leader/follower Stackelberg) and relate them to the model assumptions. 9. Understand the importance of sequential play in which commitment is possible and the reason that mergers that might not happen in a simultaneous setting can happen in a sequential one. 10. Explain why a horizontal merger may make sense when the products are differentiated substitutes as compared to homogeneous goods. The student will be able to solve a simple circle location model involving the merger of two of the firms. 11. Solve a simple circle location model involving price discrimination. The student will be able to show how the market equilibrium in the price discriminating circle location model changes with the merger of two of the firms. The student will understand why mergers are a particularly valuable way to avoid price competition in a circle location model where price discrimination is possible and prevalent. 12. Explain the public policies towards horizontal merger.
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