Upwards pricing pressure on the hogan-daiz price

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Two premium ice cream producers that set prices and sell differentiated products propose to merge. Firm A sells Hogan-Daiz for a price of $10 with a marginal cost of $5. Firm B sells Bob&Jelly's for a price of $12 and a marginal cost of $6. a. When the price of Hogan-Daiz rises, 10% of its lost demand goes to Bob&Jelly's. What is the marginal cost reduction for Hogan-Daiz rises that is required to offset the upwards pricing pressure on the Hogan-Daiz price? b. You are employed as a consultant by the merging firms. You know that the DOJ knows that the marginal cost of Bob&Jelly's will fall by 60 cents as a result of the merger, but that the agency is unsure of the diversion ratio between Bob&Jelly's and Hogan-Daiz. How small will you need to claim that the diversion is in order for there to be no net upwards pricing pressure on the Hogan-Daiz price?

Reference no: EM133273996

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