Suppose that antitrust authorities are evaluating whether or not to allow a horizontal merger. Before the merger,
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Suppose that antitrust authorities are evaluating whether or not to allow a horizontal merger. Before the merger, the market was competitive, and the merging firms supplied a total of 5,000 goods to the market at a price of $40 per good. Of course, this means that the firms average costs were $40 per good pre-merger. After the merger, expert economists predict that the merged firm will be able to cut its average costs down to$38 per good, but their increased market power will also allow them to sell 4,000 goodsat $45 per good.
(a) Describe the Williamson Tradeoff or depict graphically
(b) Calculate the Williamson Tradeoff that results from this merger
(c) Should this merger be allowed?
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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