ECON 180 - Regulation and Antitrust Policy
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Course page:
www.cbpa.drake.edu/econ/boal/180
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(1)d (2)b. (3)c. (4)d. (5)a. (6)a. (7)a. (8)b. (9)c. (10)b.
(1)d. (2)c. (3)d. (4)e. (5)b. (6)b. (7)b. (8)d. (9)d. (10)d.
(1) [Motivations for vertical mergers: 8 pts]
(2) [Vertical merger for monopoly extension: 52 pts]
Table of results | (i) Upstream market monopolized, downstream market competitive |
(ii) Vertically integrated monopoly |
---|---|---|
Q = Quantity of software (and computers) | 140 | 140 |
PS = price of software | $160 | |
Profit of upstream firm | $19,600 | |
PP = price of computers | $460 | $460 |
Profit of downstream firm | $0 | |
Total upstream + downstream profits | $19,600 | $19,600 |
(3) [Tying: 28 pts]
Critical thinking [10 pts]
A slightly different but equally plausible explanation is that high-quality retailers "serve as the consumer's agent in ascertaining the quality or stylishness" of the handbags. Discount retailers free-ride on this service. Again, the luxury handbag company seeks to enforce a retail margin that will prevent the full-service retailers from being undercut. [This idea is due to Marvel and McCafferty (1984).]
(1) [Motivations for vertical mergers: 8 pts]
(2) [Vertical merger of successive monopolies: 52 pts]
Table of results | (i) Successive monopolies | (ii) Vertically integrated monopoly |
---|---|---|
Q = Quantity of software (and computers) | 70 | 140 |
PS = price of software | $160 | |
Profit of upstream firm | $9800 | |
PP = price of computers | $530 | $460 |
Profit of downstream firm | $4900 | |
Total upstream + downstream profits | $14,700 | $19,600 |
(3) [Tying: 28 pts]
Critical thinking [10 pts]
[end of answer key]