Question

The 2014 announcement that Time Warner Cable and Comcast intended to merge prompted questions of monopoly because the combined company would supply cable access to an overwhelming majority of Americans. It also raised questions of monopsony since the combined company would be virtually the only purchaser of programming for broadcast shows. Assume the merger occurs: in each of the following, determine whether it is evidence of monopoly, monopsony, or neither. a. The monthly cable fee for consumers increases significantly more than the increase in the cost of producing and delivering programs over cable. b. Companies that advertise on cable TV find that they must pay higher rates for advertising. c. Companies that produce broadcast shows find they must produce more shows for the same amount they were paid before. d. Consumers find that there are more shows available for the same monthly cable fee.

Short answer

a. The monthly cable fee for consumers increases significantly more than the increase in the cost of producing and delivering programs over cable. b. Companies that advertise on cable TV find that they must pay higher rates for advertising. c. Companies that produce broadcast shows must produce more shows for the same amount they were paid before. d. Consumers find that there are more shows available for the same monthly cable fee. Answer: a. Monopoly b. Monopoly c. Monopsony d. Neither

Step-by-step solution

a.

The monthly cable fee for consumers increases significantly more than the increase in the cost of producing and delivering programs over cable. This suggests that the merged company is using its market power to set prices higher than it would be under a competitive market situation, thus demonstrating evidence of a monopoly.

b.

Companies that advertise on cable TV find that they must pay higher rates for advertising. This scenario suggests that the merged company is using its market power to increase prices for advertising, which is a common behavior for companies with monopoly power. So, this scenario shows evidence of monopoly.

c.

Companies that produce broadcast shows must produce more shows for the same amount they were paid before. This suggests that the merged company is using its position as the sole purchaser of programming to drive down prices for producers, creating evidence of a monopsony.

d.

Consumers find that there are more shows available for the same monthly cable fee. This scenario doesn't directly indicate that the merged company is abusing its market power, whether as a monopoly or monopsony. More shows available for the same monthly fee could be due to factors like increased production efficiency or a more competitive market. Therefore, this case presents evidence of neither monopoly nor monopsony.