Re: Merge Intel & Microsoft

Robin Hanson (
Wed, 06 Oct 1999 14:15:01 -0400

Peter McCluskey wrote:
> >What might make a difference would be if merging substantially reduced
> >the ability of competitors to contest either the chip or OS market.
> >This doesn't sound very plausible to me on first glance, however.
>I find it easy to imagine that the merged company would be much less likely
>to cooperate with AMD about problems AMD has with running Microsoft software,
>and with Linux/FreeBSD developers about problems they have adapting their
>software to new chips.

Ok, that's a reasonable point. 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.

> >are sold by separate monopolists, then P = PX + PY and each
> >monopolist does something like
> >
> > max (PX - CX) * D(PX + PY)
> > PX
> >
> >Where CX is the cost of making X. If the two firms are
> >merged, then together they
> >
> > max (P - CX - CY) * D(P)
> > P
> >
> >This leads to both a lower price P, and more profits. QED.
> I don't see how this conclusion follows from the analysis you presented.

The FOC of the first max gives  0 =  D(P) + (PX-CX)D'(P)
and                             0 =  D(P) + (PY-CY)D'(P) .
Added together gives            0 = 2D(P) + (P-CX-CY)D'(P) .

The FOC of the second max gives 0 = D(P) + (P-CX-CY)D'(P) .

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?

Robin Hanson Asst. Prof. Economics, George Mason University MSN 1D3, Carow Hall, Fairfax VA 22030
703-993-2326 FAX: 703-993-2323