Suppose that Microsoft is the only producer of operating systems and Netscape is the only producer of Web browsers. Suppose also that nobody wants an operating system without a Web browser and nobody wants a Web browser without an operating system. Suppose that both firms produce at zero marginal cost and that the demand for a package consisting of an operating system and a browser is given by Q = 100 − P.

a. Suppose that Microsoft and Netscape take each others' prices as given. What is the price of an operating system? What is the price of a browser?

b. Suppose instead that Microsoft first announces a price for its operating system; then Netscape takes this price as given and sets a price for its browser. Now what is the price of an operating system? What is the price of a browser?

c. Suppose that Microsoft merges with Netscape. Now what is the price for a package consisting of an operating system and a browser?