Exam 15: Monopolistic Competition and Oligopoly

Why was antitrust policy in other countries not as restrictive as in the U.S. and how has increased international competition changed antitrust policy in the United States?

What is the contestable market model?

What is the cartel model of oligopoly?

What are three causes of the decline in U.S. antitrust enforcement?

Both structure and performance criteria have ambiguities, and in the real world there are no definitive criteria for judging whether a firm has violated the antitrust statutes. Explain.

Consider two industries described by the data below. Should we use a structural analysis of markets approach or a contestable market approach to analyze the competitiveness of each industry? Analyze the industries using the correct approach and explain what information we need to use the other approach. Industry Herfindahl index value Four-firm concentration ratio A 7,500 80 B 1,000 20

You are a manufacturer of fine fountain pens. The industry you are a part of consists of only a handful of companies (such as Mont Blanc, Pelican, Aurora, Parker, and Waterman). You are organizing a fountain pen association whose purpose is to coordinate activities with your fellow pen makers. What incentive can you offer to your competition to join your association? Why might some of them be reluctant to join?

To measure industry structure economists use the concentration ratio and the Herfindahl index. Describe each of these indexes. How is the Herfindahl index used in determining public policy? Why is the Herfindahl index the preferred index of market concentration in setting government policy?

Given the market share information in the table below, calculate the four firm concentration ratio and the Herfindahl index. Firm Number Market Share (\%) 1 35 2 25 3 15 4 15 5 10

What do economists mean by the term "market structure?"

What are the three main differences between the monopolistic competition and oligopoly market structures with respect to the following: (a) the number of firms, (b) barriers to entry and (c) the interactions between firms?

What is the central characteristic of oligopoly?

Why is allocation of market share such a central feature in determining the decisions of firms in the cartel model of oligopoly and what is the central feature determining the decisions of firms in the contestable market model of oligopoly?