Question: Consider a potential entrant E who thinks about entering a market in which only one established monopolist M is active. E produces (and ships)

Consider a potential entrant E who thinks about entering a market in which only one established monopolist M

Consider a potential entrant E who thinks about entering a market in which only one established monopolist M is active. E produces (and ships) goods to be offered in the target market with marginal cost of e, M's marginal cost amount to m. The demand in the target market is Q-a-p/2, where Q denotes the quantity and p the consumer price. Moreover, a>e and a>m. a. Under the acquisition strategy, after having bought out M, E would offer Q=(2a-m)/4 in the target market. b. Under the OEM strategy, after having bought out M, E's contribution margin amounts to (a-e)/4 in the target market. c. If E enters the market under the export strategy, then his reaction function would be QE(QM)=(a-e-QM)/2, where Qi denotes the output of player i. d. The acquisition strategy is always more profitable than OEM. e. None of the other possible answers is true.

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