Subject:
Economics
Material Type:
Module
Level:
Community College / Lower Division, College / Upper Division
Provider:
Ohio Open Ed Collaborative
Tags:
Acquisition, Antitrust, Concentration Ratios, Market Concentration, Mergers, Natural Monopoly, Oss0042
License:
Creative Commons Attribution Non-Commercial
Language:
English
Media Formats:
eBook

Education Standards (6)

Antitrust Policy and Government Regulation of Business Resources

Antitrust Policy and Government Regulation of Business Resources

Overview

This topic presents an evaluation of the effect on competition of scale economies, and acquisitions and mergers.  It also covers methods of measuring market concentration as well as a discussion of possible policy measures designed to limit the damage from concentration.

Learning Objectives

  1. Describe the possible costs and benefits of mergers and acquisitions (2,11)
  2. Describe the government’s role in evaluating proposed mergers (2,6)
  3. Calculate market concentration ratios (4FCR, HHI) (2,11)
  4. Identify types of anticompetitive behavior (10)
  5. Describe regulatory strategies for natural monopolies (2,6,11)
  6. Define the potential costs and benefits of regulation and deregulation (1,2,6,11)

NOTE: This module meets Ohio TAGs 1, 2, 6, 10, 11 & 12 for an Intro to Microeconomics course

Supplemental Content/Alternative Resources

Active Learning Exercise

The following websites contain information on business regulatory policy in the U.S., the Eurozone and China, respectively.  The readings are lengthy so instructors should be selective in their assigned reading.    

After reading the assigned sections, students can discuss how the treatment of monopolies and anti-competitive behavior differs across the three regions.

Questions and Problems

Antitrust Policy and Government Regulation of Business

Questions and Problems

Instructors can add a Google Doc of the Antitrust Policy and Government Regulation of Business Questions and Problems to their Google Drive or download a Word File of the Antitrust Policy and Government Regulation of Business Questions and Problems.

 

Questions:

Use the graph to answer questions 1-5.

Monopolies r us graph

 

 

 

 

 

 

 

 

  1. If this firm is a private profit-maximizer, what output will it produce? What price will it charge? 
     
  2. If the firm were regulated and instructed to set its price equal to marginal cost, what would its output and price be?
     
  3. What problem would arise in that case?
     
  4. If the firm were regulated and instructed to follow a zero-profit pricing mode, what would its output and price be? 
     
  5. What is the change in consumer surplus moving to a zero-profit regulatory model from the private profit-maximizing model?
     
  6. Rank the following items according to the level of market concentration is most likely in each market, from least concentrated (most competitive) to most concentrated (least competitive).
  7. .......
    1. Candycorn 
    2. An Aquaman costume
    3. Paper bags with Halloween decorations for trick or treating
    4. Projection systems to display witches and ghosts on the garage door
       
  8. Go to https://www.statista.com/statistics/271496/global-market-share-held-by-smartphone-vendors-since-4th-quarter-2009/ and compute the HHI for the global smartphone market. Assume that the “Other’ category consists of 12 firms, each with 2% of the market. How would the Department of Justice consider this industry?   If Xiaomi, vivo, and Oppo merged, what would the new HHI value be?
     
  9. Go to https://www.counterpointresearch.com/us-market-smartphone-share/ and calculate the HHI for the U.S. market. This time, assume “Other” consists of two firms, each with 7% of the market.

Answers:

  1. Q=10; P=$8
     
  2. Q=35; P=$1
     
  3. The firm would make negative profits and eventually shut down.
     
  4. Q=30; P=$2
     
  5.  ∆P×∆Q2=6×202=60
     
  6. .......
    1. Paper bags with Halloween decorations for trick or treating (low barriers to entry)
    2. Candycorn (low barriers to entry, but some equipment needs and technical knowledge needed)
    3. Projection systems to display witches and ghosts on the garage door (higher barriers to entry due to capital costs)
    4. An Aquaman costume (copyrighted character)
       
  7. 1108.  According to DoJ guidelines, this industry is fairly competitive. If Xiaomi, Vivo, and Oppo merged, what would the new HHI value be? 1460
     
  8. 2588