Economics Principles, Problems, and Policies

Campbell R. McConnell, Stanley L. Brue, Sean M. Flynn

Chapter 18

Antitrust Policy and Regulation - all with Video Answers

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Chapter Questions

Problem 1

Both antitrust policy and industrial regulation deal with monopoly. What distinguishes the two approaches? How does government decide to use one form of remedy rather than the other?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 2

Describe the major provisions of the Sherman and Clayton acts. What government entities are responsible for enforcing those laws? Are firms permitted to initiate antitrust suits on their own against other firms?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 3

Contrast the outcomes of the Standard Oil and U.S. Steel cases. What was the main antitrust issue in the DuPont cellophane case? In what major way do the Microsoft and Standard Oil cases differ?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 4

Why might one administration interpret and enforce the antitrust laws more strictly than another? How might a change of administrations affect a major monopoly case in progress?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 5

How would you expect antitrust authorities to react to: $L O 2$
a. A proposed merger of Ford and General Motors.
b. Evidence of secret meetings by contractors to rig bids for highway construction projects.
c. A proposed merger of a large shoe manufacturer and a chain of retail shoe stores.
d. A proposed merger of a small life-insurance company and a regional candy manufacturer.
e. An automobile rental firm that charges higher rates for last-minute rentals than for rentals reserved weeks in advance.

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 6

Suppose a proposed merger of firms would simultaneously lessen competition and reduce unit costs through economies of scale. Do you think such a merger should be allowed?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 7

In the $1980 \mathrm{s},$ Pepsico Inc., which then had 28 percent of the soft-drink market, proposed to acquire the Seven-Up Company. Shortly thereafter the Coca-Cola Company, with 39 percent of the market, indicated it wanted to acquire the Dr Pepper Company. Seven-Up and Dr Pepper each controlled about 7 percent of the market. In your judgment, was the government's decision to block these mergers appropriate?

Victor Salazar

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Problem 8

Why might a firm charged with violating the Clayton Act, Section $7,$ try arguing that the products sold by the merged firms are in separate markets? Why might a firm charged with violating Section 2 of the Sherman Act try convincing the court that none of its behavior in achieving and maintaining its monopoly was illegal?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 9

"The social desirability of any particular firm should be judged not on the basis of its market share but on the basis of its conduct and performance." Make a counterargument, referring to the monopoly model in your statement.

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 10

What types of industries, if any, should be subjected to industrial regulation? What specific problems does industrial regulation entail?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 11

In view of the problems involved in regulating natural monopolies, compare socially optimal (marginal-cost) pricing and fair-return pricing by referring again to Figure $10.9 .$ Assuming that a government subsidy might be used to cover any loss resulting from marginal-cost pricing, which pricing policy would you favor? Why? What problems might such a subsidy entail?
(FIGURE CAN'T COPY)

Niamat Khuda

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Problem 12

How does social regulation differ from industrial regulation? What types of benefits and costs are associated with social regulation?

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 13

Use economic analysis to explain why the optimal amount of product safety may be less than the amount that would totally eliminate risks of accidents and deaths. Use automobiles as an example.

Puneet Prajapati

Puneet Prajapati

Numerade Educator

Problem 14

Under what law and on what basis did the Federal district court find Microsoft guilty of violating the antitrust laws? What was the initial district court's remedy? How did Microsoft fare with its appeal to the court of appeals? Was the final remedy in the case a structural remedy or a behavioral remedy?

Puneet Prajapati

Puneet Prajapati

Numerade Educator