Vertical Merger There is a monopoly upstream manufacturer, Firm U, that produces inter- mediate goods at a constant marginal cost 15. There are only two downstream retailers, Firm D1 and Firm D2, that can turn one unit of intermediate goods to one unit of nal goods at zero cost. The downstream market is characterized by Bertrand competition with differentiated goods. The demand for the nal goods produced by D1 and D2 are respectively given by 90 2101 + 102 90 2,02 + M (111 (f2 As usual, the upstream manufacturer moves rst by setting the price of the intermediate goods, pm. After observing pm, the two downstream retailers compete by choosing their respective prices, p1 and p2, of their nal goods. (a) What is the subgameperfect Nash equilibrium of the game above? What is the equilibrium prot of each rm? Now suppose Firm U has acquired Firm D1. Firm U now directly passes the intermediate goods (for free) to Firm D1 for its nal goods prochiction. Of course, Firm U has full control over p1 now. The game proceeds in similar manner. First, Firm U sets price pm (now only relevant to Firm D2). Second, Firm U and Firm D2 compete in the downstream market in a Bertrand manner. b. Discuss, without any calculation, the cost and benet of the acquisition to Firm U. c. What is the sul'Jgame-perfect Nash equilibrium of the game? d. Using parts (a) and (b), does Firm U nd it protable to acquire Firm D1