ECMC41-Lec9 - ECMC41 Lecture 9 2 Lecture 9: Government...

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Unformatted text preview: ECMC41 Lecture 9 2 Lecture 9: Government Policies 1. Summary of merger models Basic settings Conclusions Government: Merger guidelines 2. Antitrust Laws 3. Economic Regulation 3 1. Summary of Merger Models Model 1: Merger of Cournot duopoly firms Identical firms Merger paradox Model 2: A generalized model Variation 1: Merger paradox, SW improved Variation 2: Improved economic efficiency, SW & Model 3: Merger and cost synergies 4 Model 2: A general model Pre-merger Post-merger 1/4 1/3 1/4 1/3 1/4 Total output 3/4 2/3 Market price 1/4 1/3 CS 9/32 4/18 (decreased) Total PS 3/16 2/9 (increased) 1 q 2 q 3 q ( 29 1 1 3 2 1 1 * 1 q q q q q Max---- = 3 , 2 , 1 , 4 / 1 2 1 : * 3 2 1 = = =--- i for q q q q FOC i 5 Variation 1: When firms have different marginal costs 35 . ~ ; 4 . , 35 . , 1 . 2 3 2 1 = = = = c c c c Pre-merger Post-merger (c=0.35) 0.36 0.38 0.11 0.13 0.06 Total output 0.54 0.52 Market price 0.46 0.48 CS 0.15 0.14 Total PS 0.14 0.16 1 q 2 q 3 q 6 Variation 2: When firms have different marginal costs 08 . ~ ; 4 . , 35 . , 1 . 2 3 2 1 = = = = c c c c 1 q 2 q 3 q Pre-merger Post-merger (c=0.08) 0.36 0.29 0.11 0.31 0.06 Total output 0.54 0.61 Market price 0.46 0.39 CS 0.15 0.19 Total profits 0.14 0.18 7 ( 29 ) 3 . . ( 1 30 3 3 3 efficient less is firm e i b where bq F q C + = ( 29 ( 29 2 2 2 1 1 1 30 , 30 q F q C q F q C + = + = Q P- = 150 Model 3: Merger and cost synergies Demand: Three firms: Case 1: Before merger: three Cournot rivals Case 2: After merger between firm 2 and 3, duopoly market 8 Case 1: Pre-merger market equilibrium (three Cournot firms)...
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This note was uploaded on 11/09/2010 for the course ECM ECMC41 taught by Professor Jackparkinson during the Spring '10 term at University of Toronto- Toronto.

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ECMC41-Lec9 - ECMC41 Lecture 9 2 Lecture 9: Government...

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