Question

Predatory pricing is considered an anti-competitive practice, and is considered illegal under competition laws. Which of the following best describes predatory pricing?

Select the correct answer below:

Predatory pricing requires one company to aquire the assets of another.

One business chooses to put another out of business by pricing its product below the level another competing business must be at to make a profit.

Predatory pricing occurs when a firm colludes with one or more firms to fix prices or output.

A merger where one company purchases another as a way to reduce competition, is an example of a type of market activity that governments pass laws against. These types of regulations are described as ______________.

Select the correct answer below:

antitrust laws

market enforcement

nationalization policies

restrictive practices

According to the FTC's historical guidelines for mergers, would the FTC approve a merger between two firms that would result in an HHI of 3,025 after the merger?

Select the correct answer below:

Yes, the FTC would ignore the merger and allow it to go through.

Maybe. The FTC would scrutinize the merger and make a case-by-case decision.

No, the FTC would probably challenge the merger.

The 'Great Deregulation Experiment' is something that has characterized USA markets for many decades now. It is a response to a period of significant price regulation. But, there was a recognition that markets were stalling and markets need to be deregulated.

Review the selections below and choose the one which does not characterize an effect of the Great Deregulation Experiment.

Select the correct answer below:

It involved the airline, railroad, trucking, bus travel, natural gas, and banking industries.

Deregulation had very little impact on entries and exits in the industry market.

Deregulation is the removal of government controls over prices and quantities produced.

The government removed government controls over prices and quantities produced in a variety of industries.

The Herfindahl-Hirschman Index (HHI) is a mathematical approach to understanding market concentration that provides a single concentration indicator. What is the HHI for an industry characterized by the below noted data?

• Firm 1 has a market share of 40%
• Firm 2 has a market share of 20%
• Firm 3 has a market share of 15%
• Firm 4 has a market share of 15%
• Firm 5 has a market share of 10%

Provide your answer below:

$$HHI =

Answer 1

1) Predatory pricing : One business chooses to put another out of business by pricing its product below the level another competing business must be at to make a profit.

One firm keep lowering the prices till the levels where others cant afford to provide profitably. And at this point, all competing firms will be forced to shut down. And once competition is eliminated, existing firm is free to raise the price to enjoy monopoly profits.

2) Anti-trust laws

Anti trust laws are the collection of rules and regulations meant to ensure fair competition in market. These laws ensure that no mergers happen in a way that market competition is affected. In addition to it, anti-trust laws also look into bid rigging, price fixing, market allocation and many other aspects

3) No, the FTC would probably challenge the merger.

HHI below1500 is considered to be very competitive. HHI above 2500 is considered highly concentrated. The merger will result in HHI of 3025. Therefore, FTC would challenge it.

4) Deregulation had very little impact on entries and exits in the industry market.

Deregulations resulted in lots of entries and exits. Deregulations moved the market towards a competitive one. Many firms entered the new markets, while a lot of firms could not sustain profitability and exited the markets.

5) 2550