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ECMC41-Lec9 - ECMC41 Lecture 9 Lecture 9 Government...

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ECMC41 – Lecture 9
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2 Lecture 9: Government Policies 1. Summary of merger models Basic settings Conclusions Government: Merger guidelines 2. Antitrust Laws 3. Economic Regulation
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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 & π Model 3: Merger and cost synergies
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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 * 0 1 q q q q q Max - - - - = π 3 , 2 , 1 , 4 / 1 0 2 1 : * 3 2 1 = = = - - - i for q q q q FOC i
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5 Variation 1: When firms have different marginal costs 35 . 0 ~ ; 4 . 0 , 35 . 0 , 1 . 0 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
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6 Variation 2: When firms have different marginal costs 08 . 0 ~ ; 4 . 0 , 35 . 0 , 1 . 0 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
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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
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8 Case 1: Pre-merger market equilibrium (three Cournot firms) ( 29 ( 29 F b F b - - = - + = = 16 90 210 16 30 90 2 * 3 2 * 2 * 1 π π π ( 29 ( 29 3 2 1 1 1 3 2 1 1 2 1 2 1 60 : 30 150 1 q q q FOC q F q q q q Max q - - = + - - - - = π 1 2 3 3 1 2 2 1 2 1 2 30 150 : 2 1 2 1 60 : q q b q FOC q
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