Question: Suppose that the widget market consists of three equally efficient sellers, each with a marginal cost of $1. a. Assume that competition is well described

Suppose that the widget market consists of three equally efficient sellers, each
with a marginal cost of $1.

a. Assume that competition is well described by the "pure" Bertrand model. If
two of these three firms merge, should we worry about a post-merger price
increase? Explain.

b. Now assume that Firm 1 finds a way to lower its marginal cost to $0.90.
What is the new equilibrium price? What is the new HHI? Are consumers
harmed?

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