ECON 4333
Spring 2015
Homework Assignment 3
1. Explain the phenomenon of market foreclosure. Specifically, explain how a vertical merger may “substantially lessen competition or tend to create a monopoly” by virtue of market foreclosure. Explain how the following mergers might result in market foreclosure:
a. A shoe manufacturer integrates “downstream” by merging /acquiring a shoe retailer (make reference to the Brown Shoe case here).
b. A dominant cable TV distributor (such as Time-Warner or Sudden Link) integrates “upstream” by the merger/acquisition of programmers such as HBO, MTV, or ESPN.
2. This question is based on Figure 2.
a. If the Bijou did not engage in 3rd degree price discrimination, then the price of a ticket would be $______ , there would be _______ kid patrons and ______ adult patrons and total revenue from the sale of tickets would be $_______.
b. If the Bijou did engage in 3rd degree price discrimination, then the price of a kid ticket would be $_____, the price of an adult ticket would be $______.
c. Other things being equal, the practice of price discrimination would increase the total surplus (TS) if area was greater than area .
d. By practicing price discrimination, the Bijou can increase its profits by $ .
3. What is tying? When does the practice of tying run afoul of the antitrust statutes? The Supreme Court ruled in the Eastman Kodak v. Image Technical Services [ 504 U.S. 451 (1992)] that Eastman Kodak’s practice of withholding access to replacement parts for its volume copiers and micrographic equipment from independent service organizations (ISOs) gave its own service division an unfair, and illegal, advantage in the “after market for repair services.” Review the dissent of Justice Scalia in this case. Why did this case fail to meet the test for illegal tying, according to Justice Scalia?
4. If a large firm is found to possess monopoly power, what else is needed to find the firm guilty of monopolization? Why is possessing monopoly power insufficient for illegality? Explain the relevance of the “applications barrier to entry” in the Microsoft case. What strategies did Microsoft employ, according to the Justice Department, to preserve the applications barrier?