Question 1

Why is competition in platform monopolies ususally connected to technological change?

Accepted Answer

Platform monopolies tend to be natural monopolies. This means that once a platform is established, there will be strong barriers to entry, which provide existing firms with significant market power. New technologies, however, can provide totally new ways of providing the service that the platform business provides by creating a whole new platform. This undermines the intial platform monopolies monopoly.

Question 2

What are the three main U.S. antitrust laws and the main provisions of each?

Accepted Answer

The three main U.S. antitrust laws are the Sherman Act, the Clayton Act, and the Federal Trade Commission Act. The Sherman Act has two sections. Section one outlaws restraints of trade. Section two outlaws attempts to monopolize. The Clayton Act made four specific monopolistic practices illegal. They are: price discrimination, tie-in contracts, interlocking directorships, and purchase of a competitor's stock. The Federal Trade Commission Act created the Federal Trade Commission and made it illegal for firms to use "unfair methods of competition" and to engage in "unfair or deceptive acts or practices."

Question 3

What is the contestable market model?

Accepted Answer

The contestable market model is a model of oligopoly in which barriers to entry and barriers to exit, not the structure of the market, determine a firm's price and output decisions.

Question 4

In Industry 1, Firm A, B, C, D and E each has 20 percent of the market. In Industry 2, Firm A has 75 percent of the market, Firm B has 2 percent, Firm C has 2 percent, and Firm D and 20 other firms all have 1 percent each. Which of these two industries do you consider likely to be more competitive, and why?

Accepted Answer

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Question 5

What standard of judgment was used to decide, and what was the outcome of the following cases:
(1) Standard Oil (1911)
(2) ALCOA (1945)

Accepted Answer

The answer of What standard of judgment was used to...

Question 6

Given the market share information in the table below, calculate the four firm concentration ratio and the Herfindahl index. $$\begin{array} { | c | c | } 
\hline \text { Firm Number } & \text { Market Share (\%) } \
\hline 1 & 35 \
\hline 2 & 25 \
\hline 3 & 15 \
\hline 4 & 15 \
\hline 5 & 10 \
\hline
\end{array}$$

Accepted Answer

The answer of Given the market share information in the...

Question 7

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?

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Question 8

What is the difference between the judgment by performance and the judgment by structure methods of assessing competition? What are the problems associated with applying each standard?

Accepted Answer

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Question 9

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?

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Question 10

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?

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Question 11

What is the central characteristic of oligopoly?

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Question 12

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?

Accepted Answer

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Question 13

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.

Accepted Answer

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Question 14

What was the outcome in the following cases and were they decided by the standard of structure or performance? The cases are: (a) The Standard Oil case (b) The ALCOA case (c) The U.S. Steel case.

Accepted Answer

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Question 15

What is the cartel model of oligopoly?

Accepted Answer

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Question 16

How, if at all, does the kinked demand curve model contribute to the theory of oligopoly pricing decisions?

Accepted Answer

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Question 17

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

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Question 18

(a) For each of the following calculate the four-firm concentration ratio and the Herfindahl index.
Industry 1: 44 firms in the industry. The four largest firms each have a 15% market share, the remaining firms each have a 1% market share.
Industry 2: 7 firms in the industry. The six largest firms each have a 15% market share, the remaining firm has a 10% market share.
(b) Is it possible to state with certainty which industry is more competitive? Explain your answer by using your calculations from (a) in your explanation.

Accepted Answer

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Question 19

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

Accepted Answer

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Question 20

How does the contestable market model of oligopoly compare to the cartel model?

Accepted Answer

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Quiz 15: Monopolistic Competition and Oligopoly