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    Managerial Decisions for Firms with Marketing Power

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    Antitrust authorities at the Federal Trade commission are reviewing your company's recent merger with a rival firm. The FTC is concerned that the merger of the two rival firms in the same market will increase market power. A hearing is scheduled for your company to present arguments that your firm has not increased its market power through this merger. Can you do this? How? What evidence might you bring to the hearing?

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    Market power is indicated by how well a firm can maximize its profits. If by cutting quantity, the firm is able to significantly increase revenues, it indicates that it has inappropriate market power. On the other hand, when rival companies compete head to head, it often results in lower prices for consumers. The FTC is therefore very leery of allowing rivals to merge. However, the actual amount of the price increase after the merger will also depend on price elasticity and marginal costs. You could argue that even in the ...

    Solution Summary

    FTC decision on the merger of rival firms are discussed in 356 words.