Question

Question 2:

The following questions concern court cases involving tacit collusion.

a) The existence of first-run and second-run showings can be interpreted as intertemporal price discrimination. Explain how. Analyze the effects of an increase in the price of admission to a second-run showing. There is no need to draw any graphs here; a complete intuitive explanation is sufficient.

b) In the Cement Institute case, 11 firms bid $3.286854 per barrel on an order of 6,000 barrels. Does this throw up any red flags? Explain.

c) There were four U.S. producers of lead antiknock compounds. Whenever a price change was contemplated, it was announced more than 30 days in advance of the effective date. These price announcements appeared in newspapers. Is this a method of price signaling by which the producers can collude tacitly? Explain.

Answer 1

a) Intertemporal price discrimination is based on pricing strategy which results in a third degree price discrimination for the consumers with consumers being said segregated into different groups on the basis of demand elasticity. This consists of a strategy which exploits the first run showing by pricing it at a higher level as compared to second run due to the high demand of the first run showing. the first rank has an inelastic demand curve for a small group of consumers who value the first showing and not want to wait to view the show. II showing is for view was poor moon sensitive to pricing and the demand may be affected by the pricing so to maximize demand the pricing has to be attractive to ensure optimizing returns. Therefore the elasticity of demand decide the pricing of the product by extracting maximum benefit from consumers who represent the segment with the inelastic demand and discounted prices for the segment when demand is elastic and sensitive to pricing. An increase in price of admission to a second-run showing will lead to reduced demands and subsequent reduction in profitability due to higher cost per viewer.

b) Under the antitrust laws the section 1 of Sherman act deals with restriction of trade by unlawful engagement in a combination or through a conspiracy by individuals or organisation. Organisations may collude by formation of a bidding ring which is a group of individuals organisations which control the outcome of auctions or bids for tenders by forming a group which bids at pre-decided prices to avail benefits to certain members in the group or exclusion of other organisations from obtaining the tender through price fixing within the bids. When 11 firms submit a bid with a similar price the probability for section occurrence being a coincidence is almost nil and it clearly signals collusion and price fixing for controlling the outcome of the tendering process by formation of bidding ring between these organisations.

c) this is definitely a tactic in indulging in collusion for deriving benefits from price fixing. Antitrust law Sherman Act section month also deals with price fixing through agreement between competitors to manipulate prices or price levels of a specific commodity or service within a defined geographical area to set, raise or maintain prices for the goods or services it need not necessarily involve every competitor but involves most of the competitors in the particular market. search price fixing agreements may be interested to establish or adhere to uniform price discounts or to eliminate discounts to ascertain class of customer buy oil suppliers adopting a specific formulation for computation of selling price. Price fixing is illegal and the test which is applied usually is not existence of uniform price because that results out of healthy competition within any market but an indicator of price fixing maybe price increase announced by all competitors at a similar time especially when it is prior to an important event which is likely to impact the sale or purchase of the particular product or service. Meetings between competitors or communications provide effective evidence of collusion for price fixing but is very difficult to prove and generally requires testimony from a member of the conspiracy.