Consider a market with an upstream firm (manufacturer), M, selling to two downstream firms (retailers), R1 and R2. Suppose that firm M merges with retailer R1. Describe what impact this vertical integration will have on w1 (wholesale price for R1), w2 (wholesale price for R2), p1 (retail price of R1) and p2 (retail price of R2) and why.

Consider a market in which an incumbent first chooses a capacity level. Having observed the capacity choice, the entrant choose entry and its capacity level. If the entrant choose to enter, it has to pay a fixed cost of entry. Explain how the incumbent's capacity choice or strategy might vary with the level of this fixed cost.