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Examen AIO Juni 2008 1) Do the following facts facilitate collusion, make it harder or ambiguous (explain if ambiguous)? a. Few companies of the same size b. Cross-ownership c. Excess capacity d. Higher buyer concentration e. High fixed sunk cost for entrants 2) Price parallelism can be seen as harmful for consumers. Enterprises keep prices constant even with a change in production costs. Experts often speak of a kinked demand curve. Describe this curve and explain why producers would keep prices up while marginal costs are reduced. 3) Explain why the following quotes are not always true a. Price predation doesn’t work to chase a competitor out of the market as its assets will remain in the market. When the incumbent raises prices again the competitor will re-enter the market. b. Predation isn’t effective as it would be more interesting to merge with a potential entrant in order to keep higher profits. c. Predation isn’t effective as it would be less costly to accept the entrant and co-exist. d. 4) imagine that there are two upstream firms U1 and U2 who produce a homogeneous (and perfectly divisible) intermediate good. There is one downstream firm D1 who transforms the intermediate good into a final product and sells it to consumers. This downstream firm is a monopolist on its relevant market. a) Explain to what extent the effect of double marginalization becomes relevant. b) What can you tell about the expected profit of the upstream firms and the downstream firms? c) Now, firm U2 creates a downstream division D2. D2 is now a competitor of D1: It transforms intermediate goods into final products and sells them to final consumers. c1) Is the emergence of the new downstream firm beneficial or harmful to consumers? Explain why. c2) Would you allow a merger between U1 and D1 from the consumers’ perspective? 5) A SSNIP-test on the cigarette market shows that because a 5% price raise isn’t profitable the market definition should be wider. In what case would this lead to false information? (Cellophane Fallacy)
