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Exam 17: Competition Policy

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Question 51

True/False

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The Competition and Consumer Act makes it illegal for companies to make a contract or arrangement that would substantially lessen competition

A) True
B) False

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Question 52

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To move the allocation of resources closer to the social optimum, policymakers should typically try to induce firms in an oligopoly to:

A) cooperate rather than compete with each other
B) compete rather than cooperate with each other
C) collude with each other
D) form various levels of cartel

E) B) and D)
F) A) and D)

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Question 53

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The argument that consumers will not be willing to pay any more for two items sold as one than they would for the two items sold separately is used to justify the legality of resale price maintenance.

Under common law, courts will typically enforce contracts between competitors that reduce competition and increase prices.

A local bank sells two services, cheque accounts and ATM card services. Mr Donethat is willing to pay $8 a month for the bank to service his cheque account and $2 a month for unlimited use of his ATM card. Ms Beenthere is willing to pay only $5 for a cheque account but is willing to pay $9 for unlimited use of her ATM card. To keep this example simple, assume that the bank can provide each of these services at zero marginal cost. -According to the information provided, if the bank is unable to use tying, what is the profit-maximising price to charge for unlimited use of an ATM card?

Why do economists usually prefer private ownership to public ownership of natural monopolies?

A local bank sells two services, cheque accounts and ATM card services. Mr Donethat is willing to pay $8 a month for the bank to service his cheque account and $2 a month for unlimited use of his ATM card. Ms Beenthere is willing to pay only $5 for a cheque account but is willing to pay $9 for unlimited use of her ATM card. To keep this example simple, assume that the bank can provide each of these services at zero marginal cost. -According to the information provided, how much additional profit does the bank make when it switches to use of a tying strategy to price cheque account and ATM services?

Government-run monopolies may lead to undesirable outcomes in the form of:

A central issue in the Microsoft antitrust lawsuit involved Microsoft's integrating its internet browser into its Windows operating system, to be sold as one unit. This practice is known as:

The proper level of government intervention is ambiguous when dealing with a monopoly.

Explain the practice of tying and discuss why it is controversial.

Consider two potential book buyers, Tom and Jane, who are considering whether to purchase two books, book A and bookB. (a) If each book is sold at $12, how much revenue will the seller receive? (b) If each book is sold for $10, how much revenue will the seller receive? (c) If the seller ties or bundles the two books together and charges $22 for the two tied products, how much revenue will the seller receive? (d) Why does tying or bundling increase revenue?B. Assume that the maximum Tom is willing to pay for book A is $12 dollars, while he is willing to pay $10 dollars for bookB. Jane is willing to pay $10 for book A and $12 dollars for book

Tying is becoming increasingly important in the market for:

Private ownership of a monopoly cannot benefit society.

Why might economists prefer private ownership of monopolies over public ownership of monopolies?

If purchasers value two products differently, tying may allow a seller to increase profit by charging a combined price closer to the purchasers' total willingness to pay.

There are some logical economic arguments in favour of resale price maintenance.

Transparent pricing may help a cartel to sustain high prices.

Some business practices that appear to reduce competition may have legitimate business purposes.

Corporatisation is the process of providing incentives to make them behave more like private owners.