Question

Consider the pizza restaurants and explain the following issues.
1.What is the type of market that this industry represents?
2.Explain the concentration of the industry.
3.Explain the relationship between the elasticity of the industry demand and that of an individual firm.
4.Explain the pricing behavior of the firms in this industry.
5.Explain the effect of a horizontal integration of all the firms in the industry on the pricing behavior of the merger.
6.Given the merger in point 5, explain the changes in the concentration of the industry.
7.Given the merger in point 5, explain the relationship between the elasticity of the industry demand and that of the firm.
8.Given the merger in point 5, explain how entry into the industry is affected.
9.Explain the value of the Lerner index for the competitive market.
10.Explain why the competitive market has a very low concentration.

Really need help with problem 5-10 please!!!!

Answer 1

5. Horizontal integration will create a monopoly and increase the market power in the industry as all pizza restaurant get merged. And the monopoly will charge high prices in the market. There could be price discrimination because of one merge pizza restaurant.

6. Concentration ratio shows the competition in the market. Low concentration ratio shows that there is competition in the industry. While for a monopoly, the concentration ratio will be high as there is now only one big pizza restaurant. Therefore, now the concentration ratio will become high.

7. The elasticity of the firm and the industry will be the same. As now the demand curve will be the same for the industry and for the firm because after the merger there will only one firm in the industry.

8. Now there will be barriers to entry, it will become difficult for the new firm to enter the market and compete with the merged powerful firm.

9 The Lerner index for the competitive market is zero.

Lerner index = , and for competitive market price is equal to the marginal cost which makes Lerner index equal to zero.

10. The concentration ratio is small for the competitive market because each firm has little market share. The concentration ratio shows the market share of the top four or top five firms. The top four firms in the competitive market have very low market share. While for the monopoly there is only firm, so market share becomes 100% for it.