Acquisitions
Suppose you observed an acquisition by diversifying firm and
that the aftermath of the deal included plant closings, layoffs, and reduced
compensation for some remaining workers in the acquired firm. What would you
need to know about this acquisition to determine whether it would be best
characterized by value creation or value redistribution?
How would you characterize the nature of competition in the
restaurant industry? Are there submarkets with distinct competitive pressures?
Are there important substitutes that constrain pricing? Given these competitive
issues, how can a restaurant be profitable?
Consider a monopoly producer of a durable good, such as a
supercomputer. The good does not depreciate. Once consumers purchase the good
from the monopolist, they are free to sell it in the “secondhand”
market. Often in markets for new durable goods, one sees the following pricing
pattern: The seller starts off charging a high price but then lowers the price
over time. Explain why, with a durable good, the monopolist might prefer to
commit to keep its selling price constant over time. Can you think of a way
that the monopolist might be able to make a credible commitment to do this?
