3. Luxottica, headquartered in Milan, Italy, is an eyewear manufacturer/wholesaler that has been considering expanding vertically into the retail eyewear market. In 1995, Luxottica acquired US Shoe, owner of the retail chain Lenscrafters. Luxottica presently controls 80% of worldwide eyewear production, through brands such as Ray Ban, Prada, Chanel, Oakley and Persol, and has been labeled a monopolist in the eyewear production industry. "Sunglass Hut", a Florida-based retailer, was a major acquisition for Luxottica in 2001 and represented a significant change of strategy, as Luxottica took a major stake in the retail market by acquiring over 2000 stores (compared to the 300 they acquired in 1995), in a deal worth around $400m. You are asked to examine the economics of this merger and for these purposes, it's reasonable to treat "Sunglass Hut" as a firm with considerable market power in the retail eyewear market. Prior to the merger, Luxottica was the main supplier of eyeglass frames to Sunglass Hut. Luxottica's marginal cost of producing a typical frame was $80. Luxottica charged a price W per frame. This was Sunglass Hut's principal cost item; Sunglass Hut also had selling