Chapter 27: Q.7 (page 621)
Do you think that the regulation described in Problem 27-6 is more likely an example of the capture hypothesis or the share-the-gains, share-the-pains theory? Why?
Consumer benefits must be considered by central authority, according to the share-the-gains, share-the-pains theory.
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The manager of a Pittsburgh shop wishes to sell on eBay a used telescope that is in good condition. The manager knows that prospective buyers perceive a 50-50 chance that the telescope is in good condition. If it is, buyers are willing to pay \(1,000, but if it is in poor condition, they will pay only \)200. What is the average amount a buyer will be willing to pay? Is there a lemons problem? Explain.
An years past, firms around the world have secretly engaged in collusive agreements to restrain production and push prices above competitive levels.
Evidence compiled by government officials investigating such agreements has revealed that conspiring firms often utilize similar methods of establishing and enforcing collusive restraints of trade. Most agreements, for instance, assign to each firm an allowed market share, a permitted region of operations, or an approved set of customers. In addition, participating firms commonly are required to exchange sales information so that they can monitor adherence to their agreements to restrain trade. In this chapter, you will learn why firms that typically utilize these techniques to formulate and maintain collusive agreements engage in secret conspiracies: Such agreements are illegal under U.S. antitrust laws.
Identify alternative theories aimed at explaining the behavior of regulators
Suppose that in panel (a) of Figure 27-2, the vertical distances to points F and A are per unit and per unit, and Qm is units. To measure the degree of monopoly power, economists often examine the differential between price and marginal cost as a percentage of the price. What would be the value of this measure of monopoly power for the natural monopolist depicted in panel (a) of the figure?
How might the fact that this antitrust case involves three groups-movie studios, distributors, and broadcasters - complicate assessing whether consumers ultimately gain or lose from current arrangements?
Consider the data from Problem . Suppose that antitrust authorities have determined that the relevant market includes both e-books and physical books. These authorities perceive that a monopoly situation exists that can be challenged on legal grounds if the value of the Herfindahl-Hirschman Index exceeds . On the basis of this criterion, do the antitrust authorities conclude that there are grounds for a legal challenge? Explain.
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