Multi-Market Antitrust Economics by Scott Gilbert

Author:Scott Gilbert
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

Fig. 4.1Markets for two independent goods

Pre-merger, for each of the two firms i = 1, 2 profit takes the form P i Q i − MCQ i , in which case:

To maximize profit, firm i sets the derivative of its profit function equal to zero: 10 − 2Q i − MC = 0, in which case Q i = (10 − 8)∕2 = 1 and P i = 5 + MC∕2 = 5 + 8∕2 = 9.

Post-merger, the merged firm choose quantities Q 1 and Q 2 so as to maximize combined profit: profit = profit1 + profit2, this being:

(4.8)

To find the merged firm’s profit-maximizing choice of Q 1, we can take the derivative of profit—in formula (4.8)—with respect to Q 1. That yields the same choice Q 1 = 1 as the pre-merger profit-maximizing monopolist made, and similarly Q 2 is the same pre- and post-merger.

To illustrate, consider a merger between online retail giant Amazon.com and high-end grocery store chain Whole Foods. Such a merger has recently been proposed, and raises no obvious concerns of anti-competitive harm, at least not from the standpoint of basic economic theory, since consumers arguably consider goods bought online from Amazon.com largely independent of groceries bought from Whole Foods. Whether or not consumers actually consider these two types of goods to be independent must be tested rather than merely assumed, and there may be some dynamic strategies at play that could make the proposed merger ultimately anti-competitive, but absent such considerations there are appears little cause for the Federal Trade Commission (FTC), US Department of Justice (DOJ), or competiting firms to take antitrust issue with the proposed merger.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.