I have a question which is driving me crazy.
Can anyone help me out? Thank you in advance!
In the U.S. telecommunications industry, the market shares of the various carriers were 23.6%, 13.9%, 13.8%, 10%, 8.1%, 5%, 5%, 5%, 5% before several important industry mergers, and 29.4%, 26.3%, 22.3% 10.2%, 5%, 5% after the mergers. (There are over 150 telecommunications carriers in the United States, but most have very small shares and can be ignored.) Assume that the market can be characterized by Cournot capacity competition.
a) Estimate the pre-merger markup of price over marginal cost.
b) Estimate the post-merger markup of price over marginal cost.
c) Estimate the percentage decrease in industry marginal cost (this would be the average of each firm's marginal cost, weighted by its market share) necessary for market prices to be lower after the mergers than before.