In 1989, the Detroit Free Press and Detroit Daily news (the only newspapers in the city) obtained permission to merge under a special exemption from the antitrust laws. The merged firm continued to publish the two newspapers but was operated as a single entity.
A. Before the merger, each of the separate newspapers was losing about $10 million per year. What forecast would make for the merged firms profit? Explain.
B. Before the merger, each newspaper cut advertising rates substantially. What explanation might there be for such a strategy? After the merger, what prediction would you make about advertising rates?