I need help with this assignment. It is a mix of reading passages and responding to questions, mostly short answers with some mathematical questions and please show calculations for every step for those. For the short answer please answer fully with detailed explainations and be specific with the reasoning. NO 1 sentecne answers, need to answer the question fully with supporting reasons.1. In the Supreme Court’s decision in the case of Goldfarb vs. Virginia State Bar, the
Bar argues that “competition is inconsistent with the practice of a profession [such as
being a lawyer] because enhancing profit is not the goal of professional activities; the
goal is to provide services necessary to the community.” How does the Court
respond to this argument?
An excerpt from the court’s opinion on this case is on the class web page in the
readings section.
2. In class, we discussed how heterogeneous firms make collusion more difficult. In this
problem, we consider collusion by firms with different market shares. This problem is
related to Problem 2 from Assignment 2.
There are two firms in a market that produce an identical good. Firm 1 has a
marginal cost of 8 and firm 2 has a marginal cost of 42. Fixed costs are zero for both
firms. Suppose the inverse demand for a product is P = 130 – Q.
a) Suppose that firm 1 produces 44 and firm 2 produces 16. Note that these quantities
implement the monopoly price (as in the related problem). What are profits for each
firm?
b) If firms set quantities simultaneously (that is, play a Cournot game), what are the best
response functions? What quantities do they choose? What are profits?
c) If firm 1 knows firm 2 will play as in (a), what is firm 1’s best response? What are
profits in this case? If firm 2 knows firm 1 will play as in (a), what is firm 2’s best
response? What are profits in this case?
d) Suppose the firms meet infinitely often. They can save money at interest rate r. What
interest rate is necessary to justify trigger strategies? You should solve for a separate
interest rate for each firm.
e) Comparing this problem to the one in Assignment 2, is cheating more likely when
firms are asymmetric? If so, is cheating more likely by the small firm or the large
firm?
3.
Which of the following restraints of trade would the Addyston court consider to
be naked or ancillary? Why?
a)
A group of U.S. firms that sell only abroad agree to market their products jointly.
b)
An owner sells a part of his firm to a buyer, and forces the buyer to agree not to
compete with the portion of the business that the seller retains.
4.
In 1969, the Antitrust Division of the Department of Justice sued 900 California
supermarkets for agreeing to adopt a uniform check-cashing charge of 10 cents. Prior to
1969, most California supermarkets (including all of the 900 defendants) had no charge
for cashing customer checks, so long as a purchase was made.
Under what section of what act were the supermarkets charged?
A)
C)
Sherman Act, Section 1
Clayton Act, Section 7
B)
D)
Sherman Act, Section 2
Federal Trade Commission Act
b)
The grocery companies responded with evidence that check-cashing was a service
that used up scarce resources — and those who wanted this service should pay for it,
relative to those who paid cash and did not impose check-cashing costs (i.e., “transaction
costs”) upon the defendants. Would the court view this defense favorably?
A.
Yes, economics says that people should pay for costly services.
B.
Yes, if costs of check-cashing went up, supermarkets might lose money.
C.
No, if consumers did not pay for check cashing in the past, they should not have
pay for it now.
D.
No, while check-cashing may be costly for supermarkets, that does not justify
supermarkets agreeing on a price.
c)
The grocery companies also responded with evidence that in many parts of the
country, including states where chain store defendants were operating, grocery stores
charged a fee for cashing checks. Would the court view this defense favorably?
A.
Yes, the government should not force supermarkets to set up different check
cashing systems, which might be costly.
B.
Yes, the fact that check-cashing fees occurred in other markets shows that they
might be a natural feature of the California market.
C.
No, that still does not justify why a group of supermarkets needed to agree to a
charge.
D.
No, that does not explain why supermarkets used to not charge a fee and now do.
d)
The grocery companies also responded with evidence that the ten-cent fee did not
cover the full cost of cashing checks (relative to cash payment) if one took into account
the losses sustained due to bad checks. Would the court view this defense favorably?
A.
Yes, it is economically inefficient for firms to be charging a price far below the
cost of a service.
B.
Yes, it is unfair for the court to force firms to charge a price below the cost of a
product.
C.
No, that is an argument that the price is reasonable, which never holds up in court.
D.
No, the court cannot verify that such calculations are true.
5.
Go to the web site for the Antitrust Division of the Department of Justice
(http://www.usdoj.gov/atr/). Click on “Antitrust Case Filings” on the left. Pick a merger
case. Merger cases tend to be against two firms (e.g. U.S. v. Firm X and Firm Y). Click
on the “Complaint”. The Complaint is normally the first document that the DOJ files in a
merger case. If there is no Complaint, it is probably not a merger case. If it is a merger
case, the Complaint will say something about Section 7 of the Clayton Act on the first
few pages. For instance, you will see a sentence like “This action is filed by the United
States under Section 15 of the Clayton Act, as amended, 15 U.S.C. § 25, to prevent and
restrain defendants from violating Section 7 of the Clayton Act, as amended, 15 U.S.C. §
18.”
Read the Complaint and answer the following questions:
a)
b)
c)
d)
What is the name of the case you chose?
What is the relevant geographic market?
What is the relevant product market?
What are the barriers to entry? Did the DOJ list these explicitly or are you inferring
from the description of the case?
e) What are potential cost efficiencies (that is, cost savings for the merging firms that
will result from the merger, or sources of economies of scale)? If the DOJ does not
list them explicitly, you should guess as to what they might be.
6. Go to the Canadian Competition Policy Page Merger Simulation at UBC Sauder
School of Business. The web site is:
http://strategy.sauder.ubc.ca/simulation/mergers.php.
A link is available from the class web page.
Our simulation will be loosely based on the merger of T-Mobile and Sprint. These
firms are competing cellphone carriers and they are currently involved in an antitrust
suit with the Department of Justice about whether they will be allowed to merge.
Assume there are 4 firms in the industry, named Verizon, AT&T, Sprint, and Tmobile. For market shares, enter 29 for Verizon, 40 for AT&T, 17 for T-Mobile, and
14 for Sprint. Assume the product price is 30 and the market quantity is 10,000 and
demand elasticity is 2.5. Assume that marginal cost for the merged firms is the
average of the two firms before the merger, and that there is no reduction in fixed
cost.
a) The program calculates marginal cost for each firm. Which firm has the lowest
marginal cost? Why does the program calculate that this firm has the lowest marginal
cost?
b) Does market share for AT&T and Verizon go up or down as a result of this merger?
How come?
c) How much does the HHI (Herfindahl Index) change?
d) Would the price change trigger further DOJ scrutiny? What about the change in
consumer surplus?
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