Consider a market where initially two firms each produces a version of a differentiated good. The...

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Consider a market where initially two firms each produces a version of a differentiated good. The demands for these goods are given by: qi (Pi, Pj) = =a- - bpi 99;, where i, j = 1, 2, i j. The parameters satisfy a > c(bg), b>0, c> 0 and b> g. In principle parameter g can be positive (products are substitutes) or negative (complements). Assume firms marginal costs are equal to c>0. - (a) Suppose that firms compete initially as Bertrand oligopolists. At what prices would the sellers put their products in the market? (b) Suppose now that you are an economic advisor (next year! (-;)) and you are approached by the Competition Authority with the following question. "Look, these firms have filed a proposal to merge into a single firm. For us, the key is that consumers do not have to pay higher prices after the merger." What advice would you provide to the Competition Authority, to allow the merger or not allow it. [Demonstrate your answer by calculating the merger prices and comparing them to the ones under (a); an "allow/not allow" answer does not earn points.] Consider a market where initially two firms each produces a version of a differentiated good. The demands for these goods are given by: qi (Pi, Pj) = =a- - bpi 99;, where i, j = 1, 2, i j. The parameters satisfy a > c(bg), b>0, c> 0 and b> g. In principle parameter g can be positive (products are substitutes) or negative (complements). Assume firms marginal costs are equal to c>0. - (a) Suppose that firms compete initially as Bertrand oligopolists. At what prices would the sellers put their products in the market? (b) Suppose now that you are an economic advisor (next year! (-;)) and you are approached by the Competition Authority with the following question. "Look, these firms have filed a proposal to merge into a single firm. For us, the key is that consumers do not have to pay higher prices after the merger." What advice would you provide to the Competition Authority, to allow the merger or not allow it. [Demonstrate your answer by calculating the merger prices and comparing them to the ones under (a); an "allow/not allow" answer does not earn points.]