Exam 14: Limiting Market Power: Antitrust and Regulation

Consider an industry consisting of four firms with market shares of 30 percent, 25 percent, 25 percent, and 20 percent.Calculate the Herfindahl Hirschman Index and interpret your result.

Microsoft has been accused of violating an antitrust law pertaining to bundling.

Regulation of industry is usually carried out by special government agencies that administer and interpret the law.

Define the following terms and explain their importance to the study of economics:

What are the reasons that are usually given to justify regulation?

Economies of scale imply: (i) a continuously falling AC curve or (ii) a larger output is more efficient than a smaller output.

Briefly review the history of antitrust legislation in the United States.

Explain why firms that enjoy economies of scale or scope are candidates for regulation.

Which of the following is a valid effect of monopoly power?

Economists believe mergers can sometimes achieve greater efficiency than two companies that do not merge.

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

Which of the following events would increase the four-firm concentration ratio in a milk industry with six firms?

Monopoly rights give inventors and entrepreneurs incentives to innovate and create new products and services.

The "universal service" argument often requires that some products be sold at a loss while other products be sold at profits higher than normal.

The declared purpose of antitrust policy is to promote competition, yet some would say it actually may prevent competition.Explain the two sides of the debate.

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

Many industries are regulated in the United States, from railroads and electric utilities to cable TV.

The goal of all regulation is the creation of perfectly competitive markets.

The government used the Herfindahl-Hirschman index to determine if a proposed merger will lead to excessive concentration.

Why are the prices of some regulated industries often higher than they would be if there were no regulation?