Exercise 2: Trade-offs in full input foreclosure Whereas horizontal mergers come with a clear unilateral effect (merging firms will have an incentive to increase prices post-merger, given that some of the subsequent diverted sale will end up at the other merging party), non-horizontal mergers come with a trade- off. a) Describe, in your own words, the trade-off that for example Microsoft faces by deciding whether to foreclose access to Call of Duty to Sony's PlayStation? Suppose there is an upstream market for 'widgets' and a downstream market for 'gidgets'. A vertically integrated firm produces 8 widgets, of which it uses 5 to produce gidgets itself and sell to consumers for a total profit of 2.50 per unit and sells the other 3 to a competing gidget producer at an upstream profit of 1 .50 per unit. b) If 2/3rd of the customers of the competing gidget producer would othen/vise buy from the vertically integrated firm's downstream unit, is full foreclosure profitable? c) How does your answer change if only 1/3rd of the customers of the competing gidget producer would othentvise buy from the vertically integrated firm