Question

Please explain in detail.

Which of the following is true about market definition?
(a) The broader the market is defined, the more likely it is that two firms in that market will
be able to have a merger between them approved by the Department of Justice
(b) If two firms produce close substitutes, all else equal the Department of Justice will be less
likely to approve a merger between them
(c) Two firms producing complementary products will generally have their mergers approved
without incident, even without cost savings arising from the merger
(d) All of the above
]

Which of the following is true about price discrimination?
(a) Firms can increase their profits if they can selectively lower prices to consumers with a
lower willingness to pay
(b) Firms use coupons and other time-wasting devices as a way to get low types to “reveal”
themselves
(c) Firms are limited in the extent to which they can price discriminate by the possibility of
arbitrage
(d) All of the above

Which of the following is true about the Hotelling model with endogenouspricing and two firms located at the ends of a “city” one mile long?

(a) The location of the indifferent consumer is always at 0.5
(b) If the indifferent consumer is located at x ̃, then all consumers located to the left of x ̃ will be
indifferent too
(c) The Hotelling model was originally used to examine competition between hotels in the
1930s
(d) None of the above

Which of the following is true about entry deterrence?
(a) An incumbent monopolist will always try to block entry by a rival by increasing output
and lowering price
(b) An incumbent monopolist may not be able to block entry even if it wants to, especially if
the entrant’s fixed cost of entry is low
(c) An incumbent monopolist may try to block entry by a rival by lowering output and raising
price
(d) None of the above

Answer 1

Ans 1 The correct option is d i.e. all the above is the true about the market definition as it includes: The broader the market is defined, the more likely it is that two firms in that market will be able to have a merger between them approved by the Department of Justice. If two firms produce close substitutes, all else equal the Department of Justice will be less likely to approve a merger between them Two firms producing complementary products will generally have their mergers approved without incident, even without cost savings arising from the merger.

2. The correct option is c i.e.  Firms are limited in the extent to which they can price discriminate by the possibility of arbitrage as it is the true about the price discrimination as they extend the price that to is discriminated by the possibility of the arbitrage.

3. The correct option is b i.e. If the indifferent consumer is located at x ̃, then all consumers located to the left of x ̃ will be indifferent too is the correct about the Hotelling model.

4. The correct option is c i.e. An incumbent monopolist may try to block entry by a rival by lowering output and raising the price as they try to block entry by a rival by lowering the output as well as raising the price.