Ec 3750-Tansey
July 17, 2016
ASSIGNMENT 2 (Due ***MARCH 24 ***)
MARKET STRUCTURE MEDIA EXERCISE
The most important skill in a job with any organization is communication. This course is
designed to give you practice in using these communication skills: (1) speaking, (2)
writing, (3) solving problems, (4) reading the newspaper, (5) discussing major economic
developments, and (6) interpreting legal cases. After completing you should:
1
3
7
8
9
10
11
12
13
Be able to explicate the importance of competitiveness in markets- historically,
economically, politically, philosophically and legally.
Apply supply and demand theory with numerical and graphical examples of the
different types of market structure.
Identify market structure, conduct and performance based upon information in legal
cases, the media, economic reports, and visiting lectures.
Understand the theory of technological change and changes in structure of markets,
as well as how to measure these changes.
Recognize and know the tools for measuring the inter-relatedness of different
markets in the economy.
Discuss and explicate basic issues concerning government intervention, emerging
global technologies, and ethics in the context of regulating different markets.
Be able to know how to access Word for Windows.
Acquire the habit of reading quality media often and critically and to do so using the
internet and digitized versions of the media.
Develop the capability for studying and turning in assignments PAPERLESSLY.
PART 1. NEWSPAPER ASSIGNMENT. (Done alone by each
student alone) Find your own article (to be done individually) with which to construct
a supply chain around a market which is threatened by an event reported in the article. The
ARTICLE MUST HAVE APPEARED IN THE MEDIA AFTER THE FIRST DAY OF
CLASS DURING THIS SEMESTER.). After choosing the event, organize your paper
according to the following outline:
A.
On the answer sheet (see below ((you can lift that right off these instructions and
put it into Word Perfect OR powerpoint)) ) set up the supply chain that will
show how your market is threatened by the event you have chosen.
(a) Carry the supply chain all the way down to the consumer and all the way
back to the original resource (land, labor, or capital). You should be able to
trace one product or service through the whole chain. Each additional market in
the vertical chain will add another participant. Circle the names or description of
each of these participants or markets that you can find in the article.
(b) There should be at least three participants; (i) the seller in the first market,
(ii) the buyer in the first market who is also the seller in the second market, and
(iii) the buyer in the second market. Who pays the money should determine the
buyer and who provides the good or service in a transaction should be
considered the seller. Each additional market in the supply chain will add
another participant.
(c) Each of the participants must take title to the good or service and each
market must have a buyer and seller who make an arm's length transaction.
BI.
In the mounted article you turn in UNDERLINE (not more than a sentence)
mention of the one single event that affects the entire supply chain.
(a)
In the market where the event first has its impact, circle the letter of the
appropriate shift on the answer sheet:
"A" represents a leftward (upward) shift in supply.
"B" represents a rightward (downward) shift in supply.
"C" represents a leftward (downward) shift in demand.
"D" represents a rightward (upward) shift in demand.
(even if a single event affects several markets, define the event narrowly
enough to have its initial impact in only one market- remember ceteris
paribus!!! Sometimes, if the initial event involves a specific participant
in your chain there may be two markets initially impacted when the
participant is both a buyer in one market and a seller in the immediate
downstream market.)
(b)
To indicate the vertical impacts of the initial event, place "X"'s on the
answer sheet over the appropriate letter in the rest of the markets in your
supply chain. These X's should be placed in accordance with the
following rules for shifts of derived demand and supply shifts due to
changes in supply determinants (i.e. resource prices and availability).
RULES for VERTICAL DEMAND and SUPPLY SHIFTS
Determinants of supply and demand:
1. A higher price of resources shifts the supply
curve upward.
2. A lower income of buyers (total revenue if firms are
buyers) shifts demand downward.
Implications:
1. A demand shift causes a demand shift
in the same direction for all upstream markets.
2. A supply shift causes a supply shift
in the same direction for all downstream markets.
3. A change in price or quantity in any market translates
into supply shifts in downstream markets.
4. A change in price or quantity in any market translates
into demand shifts in upstream markets.
Every market must have a shift that is circled or have an X, but no market should have
more than one circle (or “X”).
C.
On your answer sheet describe each market as monopoly, oligopoly,
monopolistic competition, perfect competition, monopsony, oligopsony,
bilateral monopoly, or bilateral oligopoly. Support your description first by
deciding:
(a)
What aggregation you are examining? Industry? Product? Product line?
Generally this is implied by the name of the item in your study.
(b)
What is the size of the market? Decide if it is international (“I”),
national (“N”), regional (“R”), statewide, or local (“L”) and circle the
appropriate category on the answer sheet. Pertinent evidence includes
the amount and distance in which goods are shipped, the extent of
advertising (national T.V.? Local T.V.? Radio? National newspaper?
local newspaper? etc.), mobility of buyers, availability and economics of
transport, information on the distance between competing firms, and the
location of firms. Generally try to pick the widest market boundaries
that evidence can possibly support. Circle the letter of the appropriate
market size on the answer sheet
(c)
Is there product differentiation? Circle “Y” if there is and “N” if there
isn’t. This determines whether there is monopolistic competition or
perfect competition for a competitive market.
(d)
How many buyers and sellers there are in the market area? Circle on the
answer sheet “m” if there are many, “f” if there are few, and “1” if there
is only one firm in the market place. Do this for both the buyers and
sellers in a market. Here's a table to keep it clear:
Number of:
Buyers
Sellers
Monopoly
Many
One
Oligopoly
Many
Few
Competition
Many
Many
Monop
sony
One
Many
Oligopsony
Few
Many
Bilateral
Monopoly
One
One
Bilateral
Oligopoly
One/few
One/few
Your article must have a citation (page, date, title of news source), must
be sent electronically and must be neat or the internet site and the date
for the media article you have used.
There is an example of this assignment at the website
cte.rockhurst.edu/tanseym
Participants
Product
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
competition,etc) Left Right Left Right
I=international,N=national, (Y= yes, N=no)
R=regional, L=local
Seller
Markets
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Circle one for each
market
Circle One Circle
One
Circle
One
Write down
one market
Type
Circle One of the
four possibilities
By the way if you want to use the above template. Just get into power point (or WORD),
select it (by clicking on the template above so that you can see the four dots on the
corners) and paste it onto a powerpoint slide or onto a WORD page. In Word you can go
into VIEW, TOOLBARS, and DRAWING to insert a textbox over the template to write
over the template (you’ll need to choose a clear background for the textbox to be able to
see through it- talk to the professor about how to do this).
YOUR ARTICLE MUST HAVE APPEARED IN THE MEDIA AFTER THE FIRST
DAY OF CLASS DURING THIS SEMESTER. Turn in for this assignment the
word file containing the assignment. It should be entitled
“LAW09SlastnameAssn02” and send it to me with the subject line under the
same name in WEBCT.
EXAMPLE: (find Example at cte.rockhurst.edu/tanseym at Ec 3750 under “Hw #2
Examples”
PART II. GROUP QUESTIONS (Done by each team-
find your own
team of up to four members- submit only one copy per team with all of the team names.
You can choose to be team A, B, C, or D. but then you must do all of the questions for that
team)
1. Munn vs. Illinois and Nebbia vs. New York.
GROUP A. Based on the common law cited in the Munn case, does the existence of
monopoly clothe a business with a public interest? (Ever? Always? Sometimes?) Do the
common law precedents provide an adequate foundation for deciding whether or not a
firm is clothed with a public interest and therefore should be regulated? What other basis
besides monopoly might clothe a business with a public interest (look at Nebbia par. #12
to the end)? Do any of the ways to determine what is clothed with a public interest
provide an adequate way to decide what should be regulated?
GROUP B. Decide whether the majority or the dissenting minority in the Munn and
Nebbia cases makes the best case for efficient, competitive markets as well as
economically desirable outcomes.
GROUP C. In Nebbia, what is destructive competition (paragraph #4) and “ruthless
competition” (paragraph #12)? According to paragraph #4, are there economies of scale
or diseconomies of scale for the milk distributors? Should the courts have any
responsibility to intervene to support the large producers? Should government be
intervening in the milk market at all? Do the arguments in paragraphs 4-6 of Nebbia
provide any basis for regulating that make economic sense?
GROUP D. How does the court relieve itself of the burdens of deciding whether specific
forms of regulation are meritorious? (Be very specific with respect to whom it gives
authority and what authority it retains for itself)
2. Madison Gas & Electric
GROUP A. Why might it be profitable for a utility to use meters that would determine the
time and quantity of use, rather than just the quantity of use? On the other hand, why might
a utility decide that it is unprofitable to install meters that determine the time and quantity
of use?
GROUP B. How should peak and off-prices be determined by a utility? Why would they
need a measure of the elasticity of demand both for peak and off-peak use for the purpose
of deciding of prices? Why couldn’t they use an average of the two elasticities?. Which of
the costs (customer, demand and energy costs) is a fixed cost and which is a variable cost?
GROUP C. What is the difference between the legal definition of price discrimination and
the economic definition of price discrimination? From an economic point of view, is
economic price discrimination ever required for purposes of efficient provision of service?
GROUP D. What are the difficulties of measuring short run marginal costs? Why is it not
possible to use short run marginal cost. In this case, what is the concept that is invented to
measure marginal costs?
3.
Merger Law.
For each of the following cases describe the legal facts of the cases and legal
resolution, what antitrust precedents were used, and whether or not the outcome made
economic sense.
Group A.
History of the AT&T breakup
Group B. United States of America v. Microsoft Corporation Civil Action No. 981232 (TPJ)
Group C.
Brown Shoe Co. V. United States, 370 U.S. 294 (1962) 370 U.S. 294
Group D.
United States V. Von's Grocery Co., 384 U.S. 270 (1966) 384 U.S. 270
4. American Tobacco Co. V. United States, 328 U.S. 781 (1946) 328 U.S. 781
Group A.
Describe the original legislation and precedents that mark the
evolution of the concept of “monopolizing” making sure that you describe how
American Tobacco contributes to this evolution.
Group B.
Based on the information in the table of data on the cigarette companies in
this case, compute the Herfindahl Index for each year for this market. Do you agree or
disagree with the following statement in the case that immediately follows the table:
“The further dominance of American, Liggett and Reynolds within their
special field of burley blend cigarettes as [328 U.S. 781, 796] compared with the
so-called '10 cent cigarettes,' is … apparent. … “
Group C.
It has been argued that the cigarette industry is characterized by
externalities. Discuss whether or not “monopolizing” should be allowed to correct such
externalities using the cigarette industry as a case study. (HINT: remember minimum
restraint necessary to achieve the objective).
Group D.
Construct a vertical chain using the following template based on the
information in the case:
(m=many,f=few,1=one) Type of Market SHIFTS OF:
Participants
Markets Product
Differentiation SELLERS BUYERS (eg. Monopoly, SUPPLY DEMAND
I=international,N=national, (Y= yes, N=no)
R=regional, L=local
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
competition,etc) Left Right Left Right
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Y Nm
f 1 m f 1 ___________
A B C D
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Seller
Buyer
Extent: I N R L
Circle one for each
market
Circle One Circle
One
Circle
One
Write down
one market
Type
Circle One of the
four possibilities
Under supply and demand show the effect on supply and demand at every level of your
chain of the one event of the top three cigarette companies eliminating their competitors.
Specifically, answer:
a. What happens to prices to the consumer?
b. What happens to the quantity of cigarettes available to the consumer?
c. What happens to the prices of land received by the land owners who rent
farmland (they should be in your chain)
d. What happens to the quantity of land planted in Tobacco (that also should
be in your chain)?
5.
Technological Change
Many of the cases in this course hinge upon a fundamental tradeoff between the
government’s desire to provide incentives for technological change (by promoting
invention, innovation, or diffusion) versus preserving competition. In each of the
following cases, describe the facts of the case as well as the progress through the court
system, the important precedents, the economic sense of the determination of the case,
and whether the courts favor rewarding technological change or competition.
Group A. Jerrold Electronics Corp. V. United States, 365 U.S. 567 Based on the
Jerrold case, what would be necessary to prove legally in order to show that a firm was
illegally tying. Does the Jerrold case make it easier or less easy for the plaintiff to prove
such a case (relative to what had to be proved before the Jerrold case)?
Group B. Cheney Bros.V.Doris Silk Corporation. 35 F.2d 279
Group C.
Sony Corp. v. Universal City Studios (BetaMax)
Group D.
A&M Records V Napster (9th circuit 00-16401)
Bill of Rights (Amendments to the Constitution)
Several of the cases analyzed in this course have concerned the amendments to the
constitution. Following are some of the key cases. For each one, set down the facts of
the case, write down the specific amendment that it involves, explicate whether or not the
use of the amendment in the case makes economic sense, and answer any additional
questions:
Group A.
In Santa Clara County V. Southern Pac. R. Co., 118 U.S. 394 (1886)
118 U.S. 394 quote the specific passage in this case that was so revolutionary in
bestowing political power on the modern corporation. How specifically was this
quotation used by corporations? What, if any, justification does the Supreme Court use to
justify the interpretation that they give of the amendment used in this decision?
Group B.
The Patriot Act
Group C.
George W. Bush, Et Al., Petitioners V. Albert Gore, Jr., Et Al.
[December 12, 2000]
Group D.
Munn v. Illinois and Nebbia v. New York
7.
Market Boundaries.
Group A.
In some cases in antitrust law the defendant tries to define products very
narrowly so that they do not appear to be in the same market as other goods or services.
However, in other types of antitrust cases, the defendant wants to define the product
market as broadly as possible to include many different goods and services. Name the
different types of antitrust laws which provide these conflicting incentives to the
defendant and provide at least two precedents we have studied which apply to each of the
two types of law (in other words, you should be naming at least four precedents in all).
Group B.
Describe the antitrust precedents that have led to an evolution in the
importance of the concept of market boundaries and the techniques for specifying those
market boundaries. Make sure you specify the role that market boundaries play in
determining market power. (Hint: do not focus your answer on the issue of how market
power within boundaries is determined).
Group C.
Describe the role that market boundaries play in the case of Utah Pie. Set
down the facts of the case and explicate whether or not the case makes economic sense.
Group D.
Describe the role that market boundaries play in the case of Schwinn. Set
down the facts of the case and explicate whether or not the case makes economic sense.
Turn in for this assignment the word file containing the assignment- only one
submission for each team ((N OTHER WORDS, YOU ALL HAVE TO TO
PUT ALL OF THE ANSWERS TO ALL OF THE QUESTION INTO ONE
FILE). It should be entitled “LAW09SlastnamesAssn03” and send it to me
with the subject line under the same name in WEBCT BY 9:30 ON March
24. Make sure that each of your lastnames appears in the title of the final
file.