Economics

Antitrust Analysis of a League Merger. Demand for professional soccer teams in Europe is given by P(Q) = 51 ? 3Q where Q is the total number of soccer teams and P is the average revenue generated from the last team. Starting a new team has a constant marginal cost MC = 24.

1. Suppose that Bundesliga (B) and La Liga (L) are the only two soccer leagues in Europe, and they engage in Cournot competition by each simultaneously choosing to produce a certain number of teams, qB and qL. The market quantity is thus given by Q = qB +qL.

Problem 1: Antitrust Analysis of a League Merger. Demand for professional soccer teams in Europe is given by PIQ}=51-3Q where Q is the total number of soccer teams and P is the average revenue generated from the last team. Starting a new team has a constant marginal cost MC = 24. 1. Suppose that Eimdesliga {E} and La Liga {L} are the only two soccer leagues in Europe1 and they engage in Cournot competition by each simultaneously choosing to produce a certain number of teams, :33 and 131,. The market quantity is thus given by Q = '33 +qL. a} Find each league's best response function. h} Find the Nash equilibrium number of teams produced by each league. c} Find the market price and the market quantity. :1} Find total prots in the market, consumer surplus, and deadweight loss. 2. Suppose that Eundeiliga and La Liga merge into one monopoly league. The merger creates an improvement in cost efciency, so the constant marginal cost of the monopoly league decreases to NICE = 15. Demand is unchanged. a) Find the market price and the market quantity. b) Find total prots in the market, consumer surplus, and deadweight loss. c} If the antitrust authority wants to maximise total surplus [consumer surplus + prots}, will they allow or block the merger