1. 10 marks). Explain why vertical mergers in successive oligopoly are profitable and under what circumstances they give rise to foreclosure effects. Solve the "Vertical Mergers in Successive Oligopoly" model done in class for the parameter values indicated below and verify that vertical merger is profitable and indicate whether or not foreclosure has occurred.. Vertical Mergers in Successive Oligopoly P = a - Q Integrated firm MC = 0, Non-integrated dealer MC = w, Non-integrated manufacturer MC = 0 Pre-merger: nI integrated firms, n nonintegrated dealers, m non-integrated manufacturers Parameter values: a = 120, nI = 3, n = 2, m = 2

2. 10 marks). Discuss the results from the empirical horizontal and vertical merger literature.