Question

Consider the following fictitious sales data (in thousands of dollars) for both e-books and physical books. Firms have numbers instead of names, and Firm $1$generates only e-book sales. Suppose that antitrust authorities' initial evaluation of whether a single firm may possess "monopoly power" is whether its share of sales in the relevant market exceeds $70$percent.

a. Suppose that the antitrust authorities determine that selling physical books and e-book selling are individually separate relevant markets. Does an initial evaluation suggest that any single firm has monopoly power, as defined by the antitrust authorities?

b. Suppose that in fact there is really only a single book industry, in which firms compete in selling both physical books and e-books. According to the antitrust authorities' initial test of the potential for monopoly power, is there actually cause for concern?

Short answer

a) Given the information in the above table, antitrust authorities' definition of "monopoly power," and the separate consideration of book selling, firm $1$had monopolistic power.

b) Firm $2$ does have the greatest total market share of $42.5$ percent, which is below than the antitrust authorities' established market share.

Step-by-step solution

Introduction(part a).

Physical books are referred to as printed books. The term "e-book" refers to a digital book.

Given Data (part a).

(a) Based on the antitrust authorities' definition of monopolistic power and the available facts, firm 1 possesses monopoly power in internet book selling.

The table below shows how internet book selling compares to book selling in physical bookstores.

The above table demonstrates that firm $1$controls $75\%$ of total internet book sales, which is more than the antitrust authorities' maximum market share.

Explanation (Part a).

As per antitrust regulators, a corporation with a market share of more than $70\%$ is deemed to have monopoly power. Considering the information in the above table, antitrust authorities' definition of "monopoly power," and the independent consideration of book selling, firm 1 has monopolistic power.

Introduction (Part b).

A printed book is made up of multiple of pages bound together by the front and rear covers. All pages of an e-book are in digital format, which implies the book has been converted to an electronic format.

Given Data(part b).

b) There is no reason for concern as none of the businesses has more than $70\%$ of the entire market share.

Explanation (Part b).

Firm $2$has the largest total market share of$42.5$ percent, which is lower than the antitrust authorities' established market share.