Question

1. Why would anyone want to enter a profitable industry knowing that profits would eventually be eliminated by competition?

2. Why wouldn’t producers necessarily want to produce output at the lowest average cost? Under what conditions would they end up doing so?

3. Why have flat-panel TV prices fallen so much? (See the World View, p. 505.)

4. What might cause catfish prices to rise far enough to eliminate losses in the industry? (See In the news, p. 503.)

5. As the price of computers fell, what happened to their quality? How is this possible?

6. How might Google’s search-engine dominance harm consumers? Help them?

7. How might consumers benefit from the merger of XM and Sirius (In The News, p. 537)? How might they lose?

8. How does individualized price discrimination by car dealers affect their total revenue and profits?

Answer 1

1. Everyone wants to enter in profitable industry knowing that profit would eventually be eliminated by competition because the lure of short run profits is substantial and there is the possibility of cost reduction and product improvements, prolonging profits for sometime to come.

2. Producers always produce at marginal cost=price, not average cost=price. This makes sense since the marginal cost = the cost of making the last unit. As long as this cost is less than the price, there's no incentive for the firm not to produce it. They could produce output at the lowest average cost, but there would usually still be profit to be made.

3. At a time when it feels like nothing is getting cheaper, the real price of a TV has fallen more than 96 percent in the last 70 years.Three reasons: you know they'll keep getting cheaper, electronics manufacturers are getting more efficient, and all TVs are (basically) alike.Television's incredible shrinking price tag isn't just a historical trend. If you want an up-and-close look, just check out your local consumer electronics store, where retailers are participating in the annual tradition of slashing TV prices, waiting a week, and then slashing them some more. The fire sale is fantastic news for consumers; less so for manufacturers and merchants who are already selling at hair-thin margins, as Andrew Martin explains for The New York Times. Why are high-tech televisions getting so cheap year-after-year (and, in December, week-after-week)? Three reasons:

1. You didn't buy a TV last week. Holiday shopping has a strange effect on retailers and buyers. Instead of buying a TV when you want to buy a TV, you'll wait all year until Black Friday to see how much retailers cut prices. Then, if you're like millions of Americans, you'll wait another month to see if they cut prices even further. Nice job, savvy shopper! Also, you're creating a deflationary crisis for TV merchants.

   If you prefer your price analysis served in simple supply vs. demand terms: TV prices kept falling past December 25 because demand isn't strong enough to support a higher price come December 24.

   2. Manufacturers have become really efficient.This is a familiar storyline in the electronics world. Whizbang product debuts. Early adopters clamor for it. Rich people buy it. Other companies replicate it. Supply chains improve. Costs plummet. So do prices. Late adopters buy more. Profit margins narrow. Manufacturers find that the cash-cow has all but dried up.This narrative played out with DVD players. It's happening with flat-screen TVs, too. Manufacturers have found more and more efficient display manufacturing technologies, fierce competition has driven down prices. In 2004, the average 27-inch TV cost about $400. Today, the average 38-inch TV costs ... about $400.

3. TVs are boringly similar. For many families, the "right" TV comes down to just two factors: size and picture quality. Most of the best TV manufacturers offer similarly large TVs with similarly awesome clarity, which means there aren't a lot of differentiating features that a producer can up-sell.

This makes televisions different from, say, a tablet. You can compare the iPad and the BlackBerry Playbook across many factors: screen quality, screen size, speed, connection, touch responsiveness, and app store. The iPad is really, really different from the BlackBerry PlayBook. A Sony 40-inch flatscreen TV is really, really similar to a Panasonic. This makes it difficult to build what analysts call "brand premium." You might pay extra for an Apple product because you have a clear sense of what Apple offers above and beyond other similarly-priced products. Televisions don't have the same differentiation. As a result, TV prices tend to converge more than other electronics. Given the behavior of consumers, and the efficiency gains of manufacturers, the direction of that convergence is down.

4. Perfect competition is a market with more number of sellers and buyers in the market. Firms sell homogenous products. In a market, price is fixed by the demand and supply of a product. A firm has no barriers to entry.

5. As the price of computers fell,Quality actually improved as prices fell. The competitive process allows entry to occur in profitable industries. As profits are "squeezed" out, firms improve their product and technology, resulting in improved quality.In the free market condition the price of a product will be determined by the demand and the market supply of computers. In a market, Supply and demand is an economic model of price determination. It concludes that in a competitive market, price will function to equalize the quantity demanded by consumers, and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity .If we look at computer market, the demand is keep on increasing and also at the same time the market supply also increasing. According to the law of demand and supply, when the demand is increased, the price goes up the free market. But in this particular computer market, demand is growing but, the price comes down gradually. That is the question of this assignment and, in this piece of work I am going to discuss the best possible reasons to that behavior.

6.  Google’s search-engine dominance harm consumers.Google responded to the news by arguing that its search engine actually encouraged choice and competition, releasing blogposts showing that the rise of Google's products has been matched by similar growth in its competitors.

While Google may be the most used search engine, people can now find and access information in numerous different ways — and allegations of harm, for consumers and competitors, have proved to be wide of the mark," wrote Amit Singhal, senior vice president of Google Search, in a blog post called 'The Search for Harm'. The other post was written by Hiroshi Lockheimer, vice president of engineering for Android, and addressed Europe's concerns about Google's mobile activities.

The European Commission has sent a “statement of objections” to Google, which mentions the possibility of fining the company for abusing its power by favouring its own shopping service in rankings. It said that it will also explore whether the company has been unfairly making phone and tablet makers put Google services on their products.

“If the investigation confirmed our concerns, Google would have to face the legal consequences and change the way it does business in Europe,” EU Competition Commissioner Margrethe Vestager wrote in an emailed statement published on Bloomberg. “I want to make sure the markets in this area can flourish without anti-competitive constraints imposed by any company.” In the European Commission's announcement of the charges, Vestager says that she is "concerned that the company has given an unfair advantage to its own comparison shopping service, in breach of EU antitrust rules". By showing results from Google Shopping more prominently, search results could not be showing customers the most relevant information, the Commission says.

7. The proposed merger of XM and Sirius will combine the only two providers of satellite
digital audio radio service (“satellite DARS”). The parties claim that DOJ should not be
concerned about this merger to monopoly, because there are other suppliers in the purported
market for audio entertainment. Those claims will be evaluated by DOJ pursuant to the rigorous
analytical framework set forth in the agencies’ Merger Guidelines1
and decades of federal court
decisions interpreting Section 7 of the Clayton Act. Under that framework, there can be no
doubt that the effect of the proposed transaction “may be substantially to lessen competition, or
to tend to create a monopoly” in any relevant line of business.2

The parties further suggest that regulators should not be worried about their merger to
monopoly because they will submit to price regulation that temporarily locks in the current rates
to ensure that satellite DARS customers do not pay more after the merger than they did before.
This argument completely disregards the very reason the antitrust laws apply to mergers – to
ensure that markets are structured in a way to encourage competition. The very notion that a
competitive market structure, which so far has produced a given degree of price competition
between the parties, should be replaced by a monopoly provider subject to price regulation is
antithetical to the purpose and foundation of the antitrust laws.
Finally, the parties argue that their merger to monopoly should be allowed to proceed
because they will achieve efficiencies and cost savings from the transaction. Although in some
cases procompetitive efficiencies achieved by a merger that are not achievable through any less
anticompetitive arrangement may ameliorate anticompetitive effects that result from a
transaction, there exists no set of efficiencies that could offset the very significant competitive harm that will result from this merger. For these reasons, the DOJ should move to block XM and
Sirius from combining to form a monopoly provider of satellite DARS in the United States.

8. By sizing up the customer, the salesperson determines the customer’s reservation price. Through a
process of bargaining, a sales price is determined. If the salesperson has misjudged the reservation
price of the customer, either the sale is lost because the customer’s reservation price is lower than the
price offered by the salesperson or profit is lost because the customer’s reservation price is higher
than the salesperson’s offer. Thus, the salesperson’s commission is positively correlated to his or her
ability to determine the reservation price of each customer.