Peter McCluskey wrote:
The question is how much this threat would be reduced by a merger. Merged
threats, such as Apple offered bundling its OS with Motorola chips,
would still be feasible.
> >I guess it comes down to how serious these
> >are as entry threats? If they don't have much of a chance of beating Intel
> >or Microsoft, then it's a shame to impose great inefficiency on current
> >customers merely to increase a small chance of a competitor beating them.
>I'm fairly confident that an independant Intel would be beaten if it
>priced chips as if it had a full monopoly, and I suspect this competitive
>pressure has an effect on prices that is comparable to the benefits of a
The question is how much this threat would be reduced by a merger. Merged threats, such as Apple offered bundling its OS with Motorola chips, would still be feasible.
> >These are tradeoffs between the advantage of raises prices
> >on the consumers you have (the first term) and the advantage
> >of lowering prices to get more consumers (the second term).
> >The first max puts twice as much weight on the first term. QED?
> Ok. If I thought they were acting as if there was negligible competition,
>I would agree with your conclusions.
Actually, the same analysis applies if there is *any* market power. In this case, D(P) represents the effective demand each firm faces taking the other firms into account. Unless there is an exact price threshold, such that sales are zero above that threshold and 100% of the market below that threshold, a firm has some market power.
I have a paper in front of me arguing that we should encourage/allow movie producers to merge with theatre firms. Firms in these industries have enough market power that merging could lower prices by up to 30% and therefore increase sales by a factor of two, or so this paper says.
Robin Hanson email@example.com http://hanson.gmu.edu
Asst. Prof. Economics, George Mason University
MSN 1D3, Carow Hall, Fairfax VA 22030
703-993-2326 FAX: 703-993-2323