Two firms, Antaeus and Benina dominate the market for toaster ovens. They compete Cournot.
i) How do the prices, profits, and quantities of Antaeus and Benina compare to the outcomes of a competitive market? How does Cournot competition generate these results?
ii) Antaeus wants to acquire Benina and become a monopoly. Benina will only accept the buyout if Antaeus will pay Benina more than Benina’s profits. Can Antaeus afford to do this and still come out ahead? Why or why not?
iii) Suppose that the Department of Justice gets wind of this proposed merger and decides to stop it from happening. Why would the DoJ do such a thing?
iv) After the merger is blocked, the two firms decide that they’d like to collaborate to produce the monopoly outcome, rather than compete. What is this called? Why might Antaeus and Benina want to do this? What could go wrong if they do?