1. Explain the phenomenon of market foreclosure. Specifically, explain how a vertical merger may...

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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. Z Y This graphic depicts cost and demand conditions facing the Bijou Theater—a local monopolist in the first run movie market 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 XXXXXXXXXX)] 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 (this is toward the end of the 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?

Robert · Accepted Answer

1 
 
1. When there is integration of two companies vertically thus reducing the competition in the 
market either downstream or through market changes in reducing upstream competition among 
the two given firms, it is called as market foreclosure. Such kind of market activities might lead 
to creation of a monopoly in the market because there is amalgamation of the two firms leading 
to winning of market power by the newly formed single firm.  
a. In the first case, there is shutting down of the retail shop of the shoe when there is downstream 
integration because the shoe retailer is unable to do business with other show manufacturers.  
b. In this case, there is purchasing of the supplier or the programmers by the distributors of cable 
TV services which would prevent these programmers to be able to sell to other distributors in the 
market. If it purchases major programmers in the market then there will still be shutting down of 
the remaining programmers because only marginal number of programmes would not fetch them 
appropriate revenue to be able to survive in the market. 
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 $4 there would be 10 kid patrons and 28 adult patrons and total revenue from the sale of 
tickets would be $152. 
Without third degree price discrimination, Bijou will charge the same price from adults and kids. 
Thus we need to look at the total demand and MR for the total curve. The profit maximization 
will happen where MR total intersects the MC curve. From graph, we see this happens when MR 
total=MC=2; Q=38 (28 adults and 10 kids); P=4 TR=38*4=$152 
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b.

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....

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