Explain why mergers are always profitable in Differentiated Bertrand but are only profitable in Cournot provided cost efficiency gains are sufficiently large or markets are sufficiently concentrated. (ii) Explain why non-merging firms (i.e. outsiders) benefit from a merger in both Differentiated Bertrand and Cournot. (iii) Explain why merger waves occur in Cournot. (iv) Explain how elasticities determine the impact of the merger on mark-ups in Differentiated Bertrand.

2. (10 marks). Demonstrate the profit and welfare consequences of merger by solving the 'Cournot Mergers with Variable Cost Savings' model done in class for the parameter values indicated below. Cournot Mergers with Variable Cost Savings P = a - Q, Pre-merger: n firms, MC = c, FC = F Post-merger: n - 1 firms, Outsider MC = c, FC = F, Insider MC = c - x, FC = 2F Parameter values: a = 90, c = 30, x = 12, n = 4.

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