Analyze whether prices are likely to increase

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Reference no: EM133367535

Assume that the widget industry has three firms, with market shares as follows:

Firm 1 (40%), Firm 2 (35%) and Firm 3 (25%). Firm 1 and Firm 2 want to merge.

Analyze whether prices are likely to increase or not after the merger. Firm 1's price (P1) is 30, Firm 2's price (P2) is 28, and each firm has a margin of 50%. Assume that consumers choose between these firms according to the logit choice model.

Finally, suppose that Firm 1 and Firm 2 both will be able to reduce their marginal costs by 5% as a result of the merger. Based on UPPI calculations, do you expect prices to go up or not after the merger, should it take place? Show calculation,

Reference no: EM133367535

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