Reference no: EM13156399
Febreze (F) and Glade (G) are two brands of air freshener. Consumers consider the product a homogeneous good, but the market is actually a duopoly. The producers compete by choosing how many units to supply. The total quantity in the market is QT = QF +QG. Additionally, the two companies have different constant marginal costs, MCF = 60 and MCG = 72. On the demand side, consumer demand for air freshener is: P = 120 - QT
(a) Suppose that the two companies choose the quantities simultaneously. Find the quantity supplied by each company, the price of the air freshener, the total quantity consumed, and profits for each brand.
(b) Suppose Glade made a contract with the government and acquired the right to choose its quantity first. Febreze now has to observe Glade's quantity choice and then choose its own quantity. Find the quantity supplied by each company, the price of the air freshener, the total quantity consumed, and profits for each brand. Is there a first mover's advantage for Glade?
(c) Febreze is dissatisfied with this market situation and it is considering to buy the "right to move first" from Glade. Once Febreze acquires the "right to move first", Glade has to make the quantity decision after Febreze chooses its quantity. Can there be suitable transactions between Glade and Febreze for this arrangement? If yes, compute a range of prices at which both parties could agree.
(d) Suppose that the firms decide to merge into one big firm. Find the quantity, price and profits in equilibrium. Calculate the consumer surplus. Are consumers better off or worse off in this situation than in (a)?
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