Posted: March 7th, 2017

In the U.S. cellular 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

In the U.S. cellular 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. Assume that the market can be characterized by Cournot capacity competition. (There are over 150 cellular carriers in the United States, but most have such small shares they can be ignored).

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 percent decrease in industry marginal cost necessary for market prices to be lower after the mergers than before. (this would be the average of each firms marginal cost, weighted by its market).