Managerial Economics

Managerial Economics

ECO 610 Managerial Economics

Group Assignment 2

Concepts: Monopoly and Oligopoly

Please present your responses in good form. Support your work with appropriate references and in-text citations.Submit only one copy per group. Add only the names of the group members present at the residency when this assignment was completed.Submit your written assignment via Moodle no later Sunday, July 14 at 11:00 PM EST. Late submission will not be accepted.

Part A: Is your college bookstore a monopoly? Is there only one store on your college campus allowed to sell textbooks? Are there economic costs to this monopoly power? Are there economic benefits to this monopoly power? Assess the market for textbooks on your campus using the following key concepts from Chapter 10.

Costs or benefits of monopoly Monopoly price

Restricted output

Monopoly profits

Barriers to entry

Research and development

Economies of scale

Natural monopoly

Entrepreneurial incentives

Contestable markets

From the list above, which item is the strongest argument against your school allowing monopoly power in the textbook market? Why? From the list above, which item is the strongest argument in favor of your school allowing monopoly power in the textbook market? Why? Part B: Media Player: Monopoly? One way to limit competition is to only sell a product bundled with another product—one in which you have a monopoly. The text mentions Microsoft’s bundling of its browser, Internet Explorer, with the Windows operating system. Bundling meant that people could get Internet Explorer without paying any extra. This made it impossible for Netscape to sell its competing browser. A related issue is Microsoft’s bundling of Media Player, a piece of software that plays audio and video on the World Wide Web. Purchasers of Windows cannot buy Windows without Media player, something that makes it hard for companies selling competing products (like RealPlayer and QuickTime). The European Commission, which enforces pro-competition rules in the European Union, is hearing an antitrust case against Microsoft Europe. Use the accompanying sources, and any others you know of, to weigh the advantages to consumers of bundling RealPlayer against the disadvantages. Suppose the sole issue is the benefits to consumers. In that case, how should the European Commission rule? Should Microsoft be required to offer a version of Windows without MediaPlayer, at a lower price? Provide as much support as you can for your answer. EU/Competition – Antitrust/Antitrust cases—this portion of the EU web site offers information on enforcement of pro-competition rules. Look at the links below the text, “Arranged by Company Name.” Click on “M” there, and then on “Microsoft Europe” (you will need to wheel down the page) to see the most recent material on the case.

Microsoft PressPass – The Journalist’s Resource for Microsoft News—this portion of the Microsoft web site provides links statements, press releases, and other information about the company. Click on “Legal News” to see materials relevant to the EU antitrust case. PC World magazine’s web site has a section devoted to the Microsoft Antitrust cases. Click on “BROWSE BY TOPIC,” the letter “M,” and then “Microsoft Antitrust Case.”
Part C: A merger in premium ice cream? A few years ago, US antitrust officials faced the following case. Nestle, producers of Haagen- Dazs wanted to merger with Dreyers, another producer of what is called “superpremium” ice cream. Those opposing the merger pointed about the combined market share of Nestles and Dreyers would be 56% so that along with Unilever, producer of Breyers and Ben&Jerrys, three firms would sell 97% of the “superpremium” ice cream in this half-billion dollar market.

Those in favor of the merger countered that the total supermarket ice cream sales are much greater, in excess of $1 billion because consumers can choose non-superpremium ice cream in which Nestle and Dreyer would command only 22% of the market and Unilver an additional 21% What is the best way to measure the market for ice cream: superpremium or all supermarket ice cream? Should the merger have been allowed? (For the actual FTC ruling see: Part D: Media conglomerates Because of the importance of media—TV, radio, newspapers and internet—in providing information and influencing public opinion, economists pay careful attention to the market structure of these producers. In recent years, some firms have gained control over multiple forms of media and gained increased market share within some media markets. At the same time, new media grew, including cable TV and internet. Thus there are two trends, one possibly decreasing competition, the other possibly increasing it.

At the heart of public policy debates are US Federal Communication Commission rulings on media ownership. Use these sources to find out about the issues in the debate: ownership ever-happened-transparency What do you think the FCC should do about media mergers?

Net neutrality, the FCC, and the digital divide
Part E: Antitrust: Lynchpin or folly? Economists generally agree that US antitrust policy is complex, changing over time, divided among several US federal government agencies, and subject to frequent court reversals. The underlying question remains whether the US needs more or less regulation of market structures.

Key questions are:

• Are US markets becoming less competitive because of mergers and acquisitions?

• Are US markets becoming more competitive because of new technology?

• Are US markets becoming more or less competitive because of globalization?

• Is enough information available for wise antitrust enforcement?

US Federal agencies involved in antitrust include: US Federal Trade Commission at: US Department of Justice: For international perspectives: For analysis see: For a strong anti-regulatory position see Heritage Foundation, a private advocacy group. It has been influential in arguing against antitrust enforcement. For an overview see: See also the Cato Institute: and the American Enterprise Institute: http:// For a strong pro-regulatory position see: Public Citizen at: The Brookings Institution attempts a non-partisan position and publishes frequent overviews of antitrust law. See, for example:



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