In 1989, the Detroit Free Press and Detroit Daily News (the only daily
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 you make for the merged
firms’ profits? 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?