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In 2011, the DOJ approved a merger between Comcast, a large Cable TV provider, and NBC Universal, a large media company that owns NBC and
In 2011, the DOJ approved a merger between Comcast, a large Cable TV provider, and NBC Universal, a large media company that owns NBC and other television stations. In this vertical merger, NBC was the upstream firm and Comcast was the downstream firm. The DOJ expressed concern that after the merger, NBC would increase the prices it charged Comcast's Rivals for its television content, to Comcast's benefit. Assume there are three Downstream Cable Providers that purchase TV content from the Upstream firm, UTV, and Cable Provider 1 and UTV announce they are going to merge. This problem asks you to calculate the UPP generated by the merger using the following inputs: 0 Assume Cable Providers 1 and Cable Provider 2 charge subscribers $100 per month and Cable Provider 3 charges subscribers $125 per month. Assume each Cable Provider earns $15 in profit per subscribe each month. 0 Assume Cable Providers' 1, 2, and 3 have downstream market shares of 50 percent, 30 percent, and 20 percent. 0 Assume that diversion from Cable Provider 2 to Cable Provider 1 is 80 percent and diversion from Cable Provider 3 to Cable Provider 1 is 65 percent. 0 Assume that Cable Providers 2 and 3 have no choice but to include UTV's television content in their Cable Packages. If they don't, subscribers will flee. In other word, (I = 1. 0 Assume the passthrough rate is 0.5. 0 Assume that Cable Provider 1 currently pays UTV $5 per month for each of its subscribers and the marginal cost for UTV to provide its content to one additional subscriber is Zero. Calculate UPP for Cable Provider 1 Calculate UPP for Cable Provider 2 Calculate UPP for Cable Provider 3 What is the overall measure of downstream UPP if the three cable providers are weighted by their market shares
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