Exam 13: Limiting Market Power: Regulation and Antitrust

Following mergers that raised the market shares of two airlines to 79 and 82 percent, respectively, of traffic in their hub cities, prices of service rose and the quantities of service fell, even though in most other markets prices fell and quantities increased.The result suggests that these markets

Cost-plus pricing and guaranteed profit regulation give the same results.

Unions typically ____ deregulation because it generally makes pricing ____ competitive.

Airline deregulation led to the demise of many smaller airlines but large carriers were not materially affected.

Deregulation has led to higher prices.

Why is regulation necessary to achieve "universal service"?

Setting price equal to marginal cost in a natural monopoly will lead to

Universal service may require making a service available in small communities where the limited scale of operations may make costs extremely high.

Regulators often raise prices instead of lowering them.This is designed to

Distinguish between predatory pricing strategy and bundling strategy.

Which of the following acts prohibited false advertising?

When firms have had to defend themselves against the charge that they have adopted unjustifiably low prices either to drive a competitor out of business or to prevent the entry of a rival, they have been accused of

____ occur when an X percent increase in input use raises output by more than X percent, so that the more the firm produces, the lower its per-unit costs become.

Define the following terms and explain their importance to the study of economics: a.antitrust policy b.economies of scale c.economies of scope

If a firm's average cost is declining, setting price equal to marginal cost will

The Herfindahl-Hirschman Index measures

Regulating firms so that they always receive a guaranteed profit rate will lead to greatest efficiency.

Economists ordinarily favor setting price equal to marginal cost when this option is feasible.

Following deregulation in the airline industry

Prices that maximize the public interest will always allow reasonable profits for firms.