The hospitality industry on the Las Vegas Strip has undergone systematic consolidation. In 2005, MGM Mirage acquired the Mandalay Resort Group. The enlarged MGM Mirage then had 37,180 of the 58,874 large hotel rooms on the Strip, half of the top Strip properties, 44% of the game tables, and 40% of the slot machines.
a. Suppose that the enlarged MGM Mirage would reduce fixed costs. Using the Cournot model, how should other hotels adjust their capacity?
b. Suppose that the enlarged MGM Mirage would reduce the marginal cost of service. Using the Cournot model, how should other hotels adjust their capacity?
c. If the enlarged MGM Mirage exercises capacity leadership, how should other hotels adjust their capacity?