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by: Noah Pouros


Marketplace > Clemson University > Economcs > ECON 424 > ORGANIZATION OF IND
Noah Pouros
GPA 3.98

Michael Maloney

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Michael Maloney
Class Notes
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This 3 page Class Notes was uploaded by Noah Pouros on Saturday September 26, 2015. The Class Notes belongs to ECON 424 at Clemson University taught by Michael Maloney in Fall. Since its upload, it has received 29 views. For similar materials see /class/214223/econ-424-clemson-university in Economcs at Clemson University.




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Date Created: 09/26/15
INDUSTRIAL ORGANIZATION CLEMSON ECONOMICS INSTRUCTIONS Answer any m 5 questions from the Basic Theory section and any ten 10 from the Applications section We have talked about some of these in class but not all They are all covered in one form or another in the book lecture notes andor the provisional text Still they will require thoughtful expression on your part Try to make your answers simple straightforward and responsive No more than one page per question Email your answers to me by Monday April 3rd 9am Normal formatting single space name included in the document page number and also make sure to include the question number BASIC THEORY QUESTIONS 1 The problems that we address in this class presume a reasonable understanding of basic price theory a Describe the stylized model of perfect competition b Why is competition good and monopoly bad 2 I drive a big fat truck that uses a lot of gasoline and no doubt to some extent increases the price of gasoline that you must pay Am I making you worse oil 3 Why is the concept of Ushaped average cost a good characterization of the nature of production within a rm 4 In the very short run practically all costs are fixed Does that mean that marginal cost is zero Why or why not 5 Very few industries maybe none exhibit the theoretical conditions of perfect competition Even so competition from the fringe seems to be common in most markets Sometimes this is called contestability Discuss the competitiveness of the fastfood industry in this light 6 Under what circumstances does a company go into bankruptcy Under what circumstances does a rm dissolve and cease doing business Is it normal for a bankrupt firm to shut down 7 If all xed costs for a particular rm are entirely avoidable ie are not sunk and vary with production will the rm choose to shutdown at the minimum of average variable cost If not why not 8 Are positive economic pro ts inconsistent with a longrun competitive equilibrium Why or why not 9 What is the holdup problem How is it associated with asset specificity Why do we say that the rm faces a tradeoff between the holdup problem and the problem of separation of ownership and control 10 V What is the contractingcost nature of the rm What constrains the growth of the rm What promotes the growth of the rm How does the concept of shirking t into the organization of the rm 11 Are large firms more likely to have monitoring problems If so why do large rms exist 12 V What did Coase mean when he described the rm as the suspension of the price mechanism Discuss MidTermdoc Revised March 14 2006 MT Maloney 1 INDUSTRIAL ORGANIZATION CLEMSON ECONOMICS APPLICATIONS 13 V 14 V 15 V 16 17 VV 18 19 V 20 21 22 V 23 V 24 V 25 26 V How do the pro ts of a dominant rm and a monopoly compare How do they both compare to the pro ts of a cartel Make an attempt to graphically illustrate your points Describe the entry of WalMart into the Clemson business area in terms of the dominant rm model and explain the costs and bene ts to the consumers and producers who were here before WalMa1t Look up the most recent concentration ratios and Her ndahl HHI indices for the following industries beer aluminum breakfast cereal petroleum re neries Discuss the competitive nature of these industries Discuss the various theories of oligopoly Recount the evidence that the US Steel merger of 1901 was a merger for monopoly What evidence is there to the contrary What are some of the key assumptions underlying the Coumot model of a noncooperative oligopoly How do rival rms react to one another and what is the structure of their production levels and respective pro ts According to the game theory strategy posed by the prisoners dilemma how should rms choose their strategies Feel free to present a sample scenario Consider the case of a single game and the case of repeated interactions Car Wars How do you explain that in a single year 1955 to be exact American passenger automobile production rose by 45 percent but then fell by nearly the same amount in 1956 In addition how do you think the average prices of these cars evolved over these three years and why What evidence would constitute proof of predatory pricing as opposed to straightforward competition Use the example of Standard Oil c 1900 as an example Why are price differentials based on cost differences not predatory pricing Discuss the theory of limit pricing What are the predictions of this model What evidence exists to support the relevance of this model a Describe the process of twotier or multipart pricing b Describe how block booking can be a form of price discrimination How does competition expunge price discrimination How can price discrimination exist in otherwise competitive markets Give some examples of competition in competitive settings comment on the nature of competition in these cases The Walker Golf Course at Clemson charges several different sets of prices to students Students can pay a at fee of 250 per semester and play as much as they like for free if they walk to ride a cart costs extra Alternatively they can pay 15 per round on weekdays and 25 per round on the weekend Explain how the Walker Course makes money by using this pricing scheme Electric Conspiracy What motives led several electrical equipment manufacturers to produce the same exact bids for Tennessee Valley Authority contracts in the 1950s What characteristics of the electric industry in particular facilitated this behavior Why was the MidTermdoc Revised March 14 2006 MT Maloney 2 INDUSTRIAL ORGANIZATION 27 V 28 V 29 30 V 31 V 32 V 33 V 34 V 35 V xixvxvii MidTermdoc Revised March 14 2006 MT Maloney CLEMSON ECONOMICS electric conspiracy a likely candidate for price collusion Is it likely that automobile companies collude on price Of cials of the ADM corporation were found guilty of conspiring to fix prices on a food additive Give an account of this and speculate on what you think might have been the total loss to society it the government had not found out about this conspiracy I claim that the grocery industry Ingles BiLo Publix etc is competitive because the national brands in the food processing industry wouldn t have it any other way What do you think of this argument Discuss Many monopolies are created and supported by government What are the causes and consequences of this The StructureConductPerformance paradigm argues that concentration leads to collusion that leads to excess profits This argument is supported by a strong correlation between pro ts and concentration BrozenPeltzmanDemsetz object to this by claiming that the causality goes in the opposite direction What is the compelling evidence of their research How does the WalMart example t into this discussion What are the efficiency arguments for vertical integration of production In what way might vertical integration be anticompetitive How can the phenomenon of notforpro t institutions be explained within the rubric of the evolution of the rm Speci cally compare notforpro t institutions with stock corporations What characteristics on the demand and supply sides of the market make not forpro t institutions dominate production in some settings and stock corporations in others Why do people paint their houses before they sell them Is it correct to say that because the practice survives that it is ef cient Compared to what alternative Is painting a house before selling it the same as women wearing makeup If people can t tell the difference between products like Coke and Pepsi in blind taste tests what is the point of brand names for these products Religious schism teaches us an important lesson about brand names What is it


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