Study Guide Economics 430 Final Exam

Define, Identify or Explain:

1. Who may sue in anti-trust?
2. Shifting incidence of damages?
3. Illinois Brick and Hanover Shoe cases
4. Conscious parallelism, tacit collusion, and American Column and Lumber case and Container Corp. of America
5. Motivations for mergers
6. Takeovers to discipline managers
7. Justice Department's horizontal Merger Guidelines
8. Vertical, horizontal, and conglomerate mergers
9. Forms of conglomerate mergers: product extension, market extension and pure conglomerate mergers
10. Natural monopoly
11. Economies and diseconomies of scale
12. 1^st, 2^nd and 3^rd degree price discrimination
13. Fully-distributed-cost pricing and marginal-cost pricing
14. Cost-of-Service and Value-of-Service Price Differentials
15. Ramsey pricing and profit-maximizing price discrimination
16. Peak-load pricing
17. 2-part pricing
18. Robinson-Patman Act
19. Herfindahl Index
20. Economic or Industry Regulation
21. Social or Safety Regulation
22. Cross subsidies
23. Rate-of-return regulation and its problems, including the Averch-Johnson effect.
24. Three suggested reforms of rate-of return regulation: Utility franchise bidding, Price Cap/Free Entry Regulation, and vertically disintegrate utility—regulate only distribution where natural monopoly occurs
25. Capture theory of regulation
26. Public interest theory of regulation
27. TR = OE + CD + VA*r

Questions:

1. What types of acts are illegal under Robinson-Patman? What types of defenses are allowed for Robinson-Patman? On the whole, does the Robinson-Patman Act seem to protect competition or competitors? Which type of cases (protect competition or protect competitors) do you expect would be brought to court most often under Robinson-Patman? Why?
2. What was the effect of Munn vs. Illinois? Nebbia vs. New York?
3. What technical conditions produce a natural monopoly in a market?
4. What is the problem of regulatory setting of price = marginal cost in a natural monopoly setting when the firm exhibits economies of scale, that is, what happens to profits? How does price discrimination solve this problem?
5. How does price discrimination affect economic welfare? How does it affect the distribution of gains from trade (the distribution of consumer and producer surplus) between buyers and sellers?
6. Besides market concentration and the conditions of entry, what other indicators do the courts consider in evaluating whether or not to allow a horizontal merger? Explain each.
7. What are some of the issues surrounding setting overall price-level for a utility (see equation above)?
8. How do markets take risk and risk differentials into effect in labor markets? Consumer product markets? What might cause the market to fall short of efficiency, i.e. under what conditions do markets work to protect us against unsafe jobs or products and under what conditions do they not protect us?