Managerial Economics and Business Strategy

Dr. David J. St. Clair Managerial Economics and Business Strategy 3551 6 Answers Summer 2012 1. What encase of evidence did Dupont introduce in its plastic wrap trial that proved decisive in its mercy? __ It brought in cross elasticities to show that at that place were m each substitutes for plastic wrap. It then argued that the market had to be defined to include all substitutes. This broadened the definition of the market to the point where DuPonts market sh atomic number 18 was small. ___ 2. What had Alcoa done that hurl the judge find it immoral of being a monopoly? It had a market sh atomic number 18 above 90%_. Did the judge witness that Alcoa was a dirty true? _ No ___ 3. why did the verdict in the U. S. stain antimonopoly case confuse e reallyone? __ U. S. Steel was ruled to be reasonable under the salutes Rule of case article of belief. This was confusing because the company had a nonorious reputation for price puting and uncompetitive practices __ 4. Bill furnish took a rattling aggressive approach to dealing with the justice subdivision in the Micro voiced case tear down though Microsoft had an Alcoa Problem. What was Microsofts Alcoa Problem? ___ Microsoft had a large market share approaching the 90% brink established in the Alcoa case ___ 5. When something is illegal per se, what does this mean? __ The government only has to prove that you did it motive or intent does not matter ___ 6. What was the remedy in the Standard oil and American Tobacco cases? __ divestiture (i. e. , the companies were humiliated up) ____ 7. What, according to Andrew Carnegie, was destructive contention? ___ excessive and ruthless competition among big firms that eliminated profits but not competitors __ 8. When we were discussing oligopoly, we referred to the two faces of oligopoly.Which face of oligopoly was Carnegie referring to in his discussion of destructive competition? the non-cooperative, extremely competitive rivalry _ 9. What does the H art-Scott-Rodino prompt require? ___ pre- uniting notification and approval by the Justice Department and the FTC ____ 10. What is a tying contract (or agreement)? __ a firm refuses to seel product that you want unless you also buy one of the firms other products ___ 11. The Sherman Act was short and sweet. It out justnessed two things. Identify both a. ___being a monopoly ______________________ b. ___trying to become a monopoly __________________________ 2. Which just act made vertical market foreclosure a violation of antimonopoly laws? __ the Celler-Kefauver Act __ 13. What was the reason wherefore the European Union blocked the nuclear fusion of GE and Honeywell? __ It violated the EUs portfolio power doctrine __ 14. What is a soft loan? ___a government loan that is never going to be paid endure a disguised subsidy __. Why fuddle many American economists likened portfolio power to a soft loan? ___They argue that portfolio power is a disguised protectionist policy masquer ading as an fair policy___ 15. What was IBMs defense reaction in its mainframe computing device antitrust case? _ It challenged the governments narrow large main-frame computer definition of the pertinent market ___ 16. What was DuPont convicted of in the GM case (be specific). ______ vertical market foreclosure ____ 17. What precedent did the Pabst create from raw stuff case set? __if the market is a local, then the relevant market m venerableiness be local ____ 18. What precedent did the Staples/Office Depot case set? ___the Justice Department or the FTC can nix a conjugation found on the anticipated price and competitive consequences ________________ 19. What happened to U. S. antitrust policy sideline the E. C. Knight case? __ as a consequence of the E.C. Knight case, antitrust laws did not apply to manufacturing and there was a wave of mergers in the manufacturing sector __ 20. In the 1890s, German courts were taking a very contrary approach to cartels and antitrust . What did the German court rule in the pulp cartel case? __ cartel agreements were licitly enforceable contracts cartels were legal and socially beneficial ___ 21. What was browned Shoe accuse of in the Kinney Shoe antitrust case? ____ vertical market foreclosure _____ 22. What was the remedy in the Brown Shoe/Kinney Shoe Case? ____ The merger was disallowed and the two firms were separated _______ 3. What does the firm have to do in a consent decree? _ bump the offending practices without admitting guilty _. What does the Justice Department agree to do in return? ___ drops the case _ 24. Why do most firms prefer a consent decree to a trial, even when they feel that they are innocent? __ the case is quickly resolved and there is no conviction that can be used to expose the firm to civil lawsuits seeking triple reparation __ 25. Are interlocking directorates illegal per se? Yes. Is price fixing illegal per se? Yes 26. Are tying contracts illegal per se? Yes Is price contrast il legal per se? _ No 7. How can the Justice Department and the FCC respond to a notification of merger filed under the Hart-Scott-Rodino Act? (Hint they have three options. ) __1) approve 2) deny or 3) approve with conditions __ 28. English plebeian law became the basis for American Common Law. What dos the Common Law say about reparation for parties injured by restraint of trade? ___ injured parties are can collect triple damages ____ 29. Which type of elasticity is a lot important in antitrust cases? _ cross elasticity __ 30. Why did the Justice Department allege that Microsoft was using a tying agreement or contract? ___The Justice Department alleged that Microsoft was tying the MS-DOS operating system to the purchase of its web browser ___ 31. Bill Gates was rather exacting and combative in dealing with the Justice Department in the Microsoft case. He seemed unaware of Microsofts Alcoa problem. What was Microsofts Alcoa problem? _________This is a duplicate question see abo ve____________ 32. How did IBMs mainframe computer antitrust suit end? ___ the Justice Department dropped the case because the court was unlikely to accept its narrow definition of the relevant market ____ 33.Why was Microsoft accused of vertical market foreclosure? ___ Microsoft was accused of using its operation system monopoly (MS-DOS) to foreclose browser maker from the market ___ 34. Why was Nabisco giving up on its strategy of seeking to create a common snapping turtle of biscuit monopoly? __It was unable to eliminate competition, especially the competition of capitals __ 35. Why was Nabisco so open in its 1901 annual report about discussing its efforts to monopolize the cracker (biscuit) industry? __Because of the E. C. Knight Case, there were no antitrust laws in 1901 that pertained to manufacturing firms _ 6. In its 1901 annual report, Nabisco announced that it was giving up on its efforts at creating a cracker or biscuit monopoly. What was the companys sunrise(prenomina l) strategy going to be? ____Nabisco was going to bring down on making better products and creating a more(prenominal) efficient and competitive firm ___ 37. What did Liggett accuse Brown & Williamson Tobacco of doing in its law suit? (dont simply say of being a monopoly or violating antitrust laws) ___Liggett accused Brown & Williamson of engaging in vulturous price by merchandising it cigatettes at below Brown & Williams AVC______ 8. Under the Areeda-Turner test, predatory determine is defined as a firm selling its product at a price ____below its average variable cost_____ 39. Was the Areeda-Turner test upheld (validated or confirmed) by the court in the Liggett vs. Brown & Williamsons case? ___No, the Areeda-Turner test was replaced by the recoupment test ___ 40. What must a complainant (the one who files the law suit) do (show) in order to keep a predatory pricing law suit from being dismissed (thrown out even before it goes to trial) under the recoupment test? ____The pl aintiff must show that the defendant did have a reasonable chance of raising prices in the future to make up for, (that is, to recoup) its short term losses due to the low prices ___ 41. Does the recoupment test introduced in the Liggett vs. Brown & Williamson case make predatory pricing law suits more likely, less likely, or equally likely compared to the old Areeda-Turner test? ____less likely _____ 42. The courts have held that predatory pricing cases require a showing that a firm has reduced price below its costs. What is the relevant cost for this criterion? ________average Variable cost (AVC) _________ 3. Many economists have used the concept of barriers to institution in their criticism of predatory pricing antitrust laws. Explain their criticism. __Predatory pricing only makes sense if the firm can rise prices after using it to attain a monopoly and if it has barriers to entry that can keep new competitors out. However, if it had such barriers in the first place, it would probably not need predatory pricing. Predatory pricing does not give the firm the required barriers to entry, unless one envisions constant predatory pricing. scarcely constant predatory pricing is nothing more than price competition. ___ 44.During the 1930s, large American buttocks companies go about competition from small cigarette companies offering new brands at 10 cents per pack. How did they meet and deal with this competition? __They resorted to predatory pricing, i. e. , they dramatically reduced their prices (in some case to below costs) in order to cause the new competitors out of the market ___ 45. Did the response of the loose Four tobacco companies to the challenge from the new 10-cent brands competitors in the earlyish 1930s work? Why or why not? _the Four Majors were unable to drive out two competitors created by the 10-cent brand episode.They had a 91 percent market share before the episode and only a 69 percent market share after. Two formidable competitors em erged and the Big Four became the Big Six__ 46. What was the verdict in the 10-cent brands cigarette case? _____the major cigarette companies were found guilty of violating the antitrust laws______ 47. Was predatory pricing the governments first allegation against the majors in the 10-cent brands cigarette price wars? If not, what was the primary complaint? _the court focused primarily on the collusion among the majors to fix prices__ 48.What was the courts remedy in the 10-cent brands cigarette case? ___the court fined the guilty parties and restricted their expertness to communicate and work together ____ 49. Why do most economists argue that antitrust laws prohibiting predatory pricing are actually anti-competitive? ____ Most economists argue that antitrust laws prohibiting predatory pricing are actually anti-competitive because any firm that lowers its prices to compete against its market competitors are susceptible to being charged with predatory pricing, even when no such in tent probably exists.Furthermore, filing an antitrust lawsuit related to predatory pricing is often abused and a convenient way for linees to compete with their competitors without matching their competitors price cutting especially since antitrust laws concerning predatory pricing are sometimes difficult to distinguish from predatory pricing, market competition, and competitive business practices. __ 50. Suppose there are five (5) firms in an industry with the following market shares 15%, 20%, 2%. 45%, and 18%. What is the Herfindahl Index for this industry? _______2,978_______. According to the 1992 Horizontal Merger Guidelines, how would this industry be classified? ___It would be classified as a highly concentrated market. _____ 51. Ceteris paribus, would a merger that raised the Herfindahl index from 1900 to 1941 be likely to trigger interest by antitrust regulators? Why or why not? ____No, because while this market would be classified as highly concentrated, the merger does not raise the HHI by more than 50 points and will because not trigger the interest of regulators. ___ 52. Ceteris paribus, would a merger that raised the Herfindahl index from 750 to 985 be likely to trigger interest by antitrust regulators? Why or why not? ___No, because a market with a Herfindahl Index below 1,000 is considered to be unconcentrated and mergers in unconcentrated markets are unlikely to be challenged by regulators. _____ 53. Tying contracts are illegal per se under American antitrust laws. However, enforcing their illegal per se status has proven to be very difficult.What is the problem here? ___While tying contracts are illegal per se under antitrust law, there seems to be no way of getting nearly some tying during the course of routine business, e. g. , left shoes tied to right shoes, etc. This therefore introduces the element of intent and competitive consequences two features that are not supposed to figure into illegal per se allegations. Currently, this prob lem is most pronounced in the practice of bundling in high tech markets. ____ 54.In the YouTube movie on Monopoly, what did Milton Friedman think was the primary cause of longer-lasting monopolies? ____government market restrictions ___________ 55. In the YouTube video on Monopoly, what did Milton Friedman think was the very best policy for dealing with monopolies and market power? ____free trade or measures to make trade more free and open _______ 56. In the YouTube video on Monopoly, Milton Friedman never mentioned or discussed Smiths Formula. However, based on his comments, what do think his position would have been on our 200-year old question? __Friedman would definitely argue that markets had, if government leaves them alone, sufficient competition to make Smiths Formula societys primary line of defense against monopoly abuse. __ 57. What happened when Coca-Cola tried to introduce its new soft drink Peppo in the late mid-sixties? ____Dr Pepper sued for trademark infringement and Coka Cola had to change the name of the product to Mr Pibb. _____ 58. How did the FTC end up delineate the relevant market in Coca Colas proposed acquisition of Dr Pepper? _The FTC took a very narrow view and defined the relevant market as the pepper-flavored soft drink market __. How did the FTC rule on the proposed acquisition? __The FTC denied the request for merger approval. __ 59. Both the FTC and Coca Cola introduced Herfindahl Indexes in support of their positions in the proposed acquisition of Dr Pepper. What was the critical point on which the proposed merger was decided? ____The definition or scope of the relevant market ____