Question

There are 2 separate markets for a good. Market 1 is monopolized by firm A and Market 2 is perfectly competitive.

Firm A then monopolizes Market 2 by merging all incumbents, and uses 3rd degree price discrimination.

Assuming cost is unchanged, will the merger affect equilibrium price and quantity, consumer surplus and producer surplus in Market 1?

Answer 1

Answer - Third degree price discrimination is said to exist when different price is charged from the different consumers for the same good.

When the merger will take place , all firms will merge into one . Therefore , the total output will be lower than before. Due to the lower output , the supply curve will decline. Also price discrimination exists. Due to the monopoly nature , the price charged will be higher than the MR and MC. This will lead to the fall in output , rise in price because whole of the market is monopolised now . Due to higher price , Consumer surplus will decrease and producer surplus will increase.