1) What is meant by an overcharge? Graphically what is measured by an overcharge. How does it relate to the efficiency losses a market suffers? How does it capture the harm done by a cartel to other agents or the additional profits the cartel earns through illegality?
2) Let demand for car batteries be such that Q = 10 - 2P. Assume constant marginal costs of 3. Compute the equilibrium price, quantity, consumer surplus, producer surplus for
a. A perfectly competitive firm
b. A monopoly
c. Two firms engaged in Cournot Competition.
d. Assume one of the two firms has a marginal cost of 3.5. What is the oligopoly outcome in this case? [Hint you can't use the trick we used to get a second equation.
e. (Hard question) Suppose a discount factor of 0.99 and a duopoly structure on agreements. What is the Pareto frontier of agree- ments that may form the basis of a cartel?
3) Assume an industry with a cost function of c(y) = 49+2y and a demand of 100-y. Assume there is an entrant and an incumbent. Assume that the incumbent announces their price before the incumbent decides to enter the industry, what is the highest price (lowest quantity) that the incumbent can offer which keep the entrant outside the market? Finally assume that if the incumbent is forbidden to make an announcement, there will be entry and both firms will adopt average cost pricing. Does it maximize social surplus to ban announcements?
4) Assume a market demand curve of D(P) = 60-3P and a fringe supply curve of S(P) = P -15. Assume a cost curve for the incumbent of C(Q) = 100 + 4Q. Find the market outcome in terms of price and quantity both for a monopolist not facing a fringe and a large dominant firm facing a fringe. Be sure to graph the dominant firm's demand and marginal revenue curves.
5)What is a per se rule? What is rule of reason? Give an example of uncompetitive behavior that is judged under each principle. Give a rationale for the difference. Give an example of a potential violation of antitrust law that wouldn't survive a rule of reason standard.
6) Explain the logic behind the corporate leniency policy for cartels by the Department of Justice?
7) Give two different measures of market concentration. Which one is (arguably) superior? Provide an example that justifies this claim. Why might all of these measures be inadequate [i.e. why might concentration not be a good measure of market power?
8) Assume a linear market demand curve and a concave average cost curve for the following questions:a. Show how an incumbent can keep an entrant out of the market by threatening to produce a large quantity.
- Show how an incumbent can keep an entrant out of the market by threatening to produce a large quantity.
- Why might this behavior be irrational if an incumbent actually faces an entrant?
- Explain how the purchase of additional capacity (even if it is never used) can make the previous behavior rational. What is meant by additional capacity in practice?
9) Explain how reputational arguments can strengthen claims of predation. What type of reputation does a far-thinking incumbent want to establish?