Exam 13: Antitrust and Regulation

Suppose there are 100 firms of equal size currently sharing the market for peanut butter. If 12 of these firms merge, how much will the Herfindahl-Hirschman Index change?

You are a member of your city's cable television regulatory commission. For the third time this year, the local cable provider has come before the commission, asking for a rate increase. This time it is to cover the cost of new, state-of-the-art cable relay equipment. Last month it was for money for advanced training for cable installers. The time before that, it wanted to cover the cost of new office equipment. How do you explain the cable company's behavior?

Marriott and Holiday Inn want to merge, but the resulting company would control 44 percent of the market for hotel rooms. They promise the Department of Justice that they will not raise room rates, if they are allowed to merge. Will the Department of Justice allow this merger? Explain using the Herfindahl-Hirschman index.

Setting a proper price is difficult in a nationalized industry because

Laissez-faire proponents contend that the government can serve a valuable role in encouraging firms to engage in research and development by creating a patent system.

When a regulatory commission of a public utility, such as an electric company, chooses a fair price as the regulated price, it chooses P = MC.

If price is set equal to marginal cost when marginal cost is below ATC, the firm will suffer a loss.

Economists who believe in encouraging concentration

Which of the following industries has not undergone deregulation in recent years?

Some economists believe that monopolies are both inevitable and beneficial to society. They believe that monopolies are more efficient than competitive markets and generate lower prices. For these reasons they oppose _________ and advocate __________.

The Department of Justice guidelines suggest that the government not interfere with mergers that occur in industries with a Herfindahl-Hirschman Index that is

Economists admire perfect competition for all of the following reasons except

Walmart is known for entering small towns and driving out its competitors. Using the theory of countervailing power, explain why the growth of Walmart may have actually increased, rather than decreased, efficiency in the United States.

Many economists believe that a nationalized firm tends to be inefficient because

When firms already in the industry produce under conditions of substantial economies of scale, the market is said to be contestable.

The theory of countervailing power asserts that

Cable television is regulated because of its monopolistic cost structure. Baseball and basketball games, which also have monopolistic cost structures, are unregulated. What do these activities (watching TV and going to the ball park or stadium) not have in common?

When choosing between fair price and marginal cost regulation for a natural monopoly, regulators must choose between

When the potential threat of new entrants serves to moderate prices in highly concentrated industries, this is called

For antitrust concerns, courts have blocked all of the following proposed mergers except