SOLUTIONS TO SELF-CHECK QUESTIONS
10.1 Corporate Mergers
- Yes, it is true. If the new firm formed by two smaller ones enters the top four, it can affect these indices.
- Yes, it is true. The four-firm concentration ratio only looks at the top four firms in a market, whereas the HHI measures many firms.
- The bus companies would have preferred the broader definition, because in that market they would have had a much smaller share and the merger would not be challenged by the Justice Department.
- Market definitions will likely become narrower, because of the increase in competition from globalization and technology.
10.2 Regulating Anti-competitive Behavior
- Because outright collusion to raise profits is illegal and because existing regulations include gray areas which firms may be able to exploit.
- Yes, all curves have normal shapes.
10.3 Regulating Natural Monopolies
- Yes it is a natural monopoly because average costs decline over the range that satisfies the market demand. For example, at the point where the demand curve and the average cost curve meet, there are increasing returns to scale.
10.4 The Great Deregulation Experiment
- Improvements in technology that allowed phone calls to be made via microwave transmission, communications satellites, and other wireless technologies.
- More consumer choice. Cheaper phone calls, especially long distance. Better-quality phone service in many cases. Cheaper, faster, and better-quality data transmission. Spin-off technologies like free Internet-based calling and video calling.
- More choice can sometimes make for difficult decisions—not knowing if you got the best plan for your situation, for example. Some phone service providers are less reliable than AT&T used to be.