Question

1. Differentiate barometric price leadership and dominant price leadership.

2. Is there a similarity between cartel pricing and monopoly pricing?

3. What conditions are favorable to the formation and maintenance of a cartel?

4. Can government be a potent force in the establishment and maintenance of monopolistic conditions? Name and describe such occurrences.

5. Describe the properties of the Baumol revenue maximization model. Do you consider this to be a good alternative to the profit maximization model?

6. Telephone companies charge different rates for calls during the day, in the evening, and at night or weekends. Do you consider this to be price discrimination?

Answer 1

1. Diiference.

Barometric price leadership-

a. Price leader is considered as a barometer.

b. Firm is more adept than others at identifying the change in market conditions.

c. Firm sets the products price in industry and othet firms follow.

Dominant Price leadership-

a. The company having largest market share sets the price of the product.

b. Othet small firms acts as a price takers.

c. One firm controls the majority of market share in its industry.

d. Dominant firm ignores the small firm's intrests.

2. Similarity

a. Cartel pricing and monopoly doesnot cover all competition laws.

b. Firms join a cartel to increase the market power and member works together for achieving a level of output. These cartel members behave like a monopolist.

3. Conditions that are favourable to the formation and maintenance of the cartel.

a. Looking at the number of firms in the market.

b. Concentration of sellers.

c. Spare capacity for production.

d. High degree of Homogeneity of the produced products.

Cartel formation and cartel maintenance are expected to increase with the number of firms in the industry.

4. Yes, government could be a potent force in establishement and maintenance of monopolistic conditions.

Government strives to maintain competition in markets.

Government can decide to play a role in redistribution of wealth and income

Reallocation of resources

Controlls the behaviour of buyers and sellers.

For example- Goverment can supply public utility services such as electricity, water supply and telecommunication services at different rates.