Consider Two Cournot Competitors Selling Complementary Goods with Demand Curves

question 80

Essay

Consider two Cournot competitors selling complementary goods with demand curves given by:
p₁ = 100 - q₁ + .5q₂
p₂ = 100 - q₂ + .5q₁
Suppose each firm has a marginal and average cost of $10.
a.What about the demand equations indicate that these goods are complements? How do they differ from the standard Cournot model?
b.Find the equilibrium prices and quantities.
c.Suppose the two firms merge.By doing so,the newly merged firm will act to maximize the joint profits ((q₁,q₂)= ₁(q₁,q₂)+ ₂(q₁,q₂)).Find the joint-profit maximizing price and quantities.
d.Are the combined profits greater or smaller from merging? That is,is merging profitable for the firms?
e.Are consumers better or worse off with the firms merging? How does this compare to the mergers of Cournot competitors selling substitutes? What does this imply about antitrust policy towards mergers of firms selling complementary goods (such as airplanes and engines,computers and processors,cars and tire companies,etc).

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Definitions:

Ethical Treatment

Involves handling people and animals with respect and kindness, ensuring their rights and welfare are considered in various contexts, from medical experimentation to their everyday environment.

Emotional Detachment

A state in which a person is able to maintain a sense of calm and objectivity in situations that might typically elicit strong emotions or attachments.

Human Correctional System

An organized framework by the government to detain, rehabilitate, and monitor individuals who have committed crimes.

Excessive Force

The use of more physical force than is reasonably necessary to execute a legal police action or to maintain control of a situation.