Task:
Mergers and Acquisitions
Section 15.3 of Introduction to Industrial Organizationis about mergers and acquisitions. The example shows that, in pure Cournot competition, a merger will always result in lower profits unless the merged firm experiences increased cost efficiencies.
In that case, the merged firm sees lower costs and higher profits while charging higher prices. In the case study briefing for the final project, the airlines argue that the merger will not result in price increases. Post an argument supporting the airlines’ position based on the Cournot equilibrium for one of the airlines’ largest markets.
Give your answer illustrating unilateral effect and collusion effect reasons why prices will increase.