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Chapter 27: Q. 2 (page 620)

A local cable company, the sole provider of cable television service, is regulated by the municipal government. The owner of the company claims that she is normally opposed to regulation by government, but asserts that regulation is necessary because local residents would not want a large number of different cables crisscrossing the city. Why do you think the owner is defending regulation by the city?

Short Answer

Expert verified

The owner justifies the regulating regime, citing monopoly rights granted by the town to provide cable services.

Step by step solution

01

Introduction

The owner of a local cable company is defending laws because he or she has monopolistic rights to supply cable services in a specific area.

02

Given Information 

-The municipal government regulates the lone provider of cable television service. Local inhabitants do not want a huge number of various cables crisscrossing the city, thus regulation is required.

03

Explanation

A significant number of cable service providers may emerge if no limits are implemented. Municipal regulation benefited the owner of a local cable company who was granted monopoly authority to provide cable services.

As a result, the owner defends the regulation policy, citing the municipality's monopoly rights to provide cable services.

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Most popular questions from this chapter

The manager of a Pittsburgh shop wishes to sell on eBay a used telescope that is in good condition. The manager knows that prospective buyers perceive a 50-50 chance that the telescope is in good condition. If it is, buyers are willing to pay \(1,000, but if it is in poor condition, they will pay only \)200. What is the average amount a buyer will be willing to pay? Is there a lemons problem? Explain.

As noted in the chapter, separating the production of electricity from its delivery has led to considerable deregulation of producers.

a. Briefly explain which of these two aspects of the sale of electricity remains susceptible to natural monopoly problems.

b. Suppose that the potential natural monopoly problem you identified in part (a) actually arises. Why is marginal cost pricing not a feasible solution? What makes average cost pricing a feasible solution?

c. Discuss two approaches that a regulator could use to try to implement an average-cost-pricing solution to the problem identified in part (a).

Consider the following fictitious sales data (in thousands of dollars) for both e-books and physical books. Firms have numbers instead of names, and Firm 1generates only e-book sales. Suppose that antitrust authorities' initial evaluation of whether a single firm may possess "monopoly power" is whether its share of sales in the relevant market exceeds 70percent.

a. Suppose that the antitrust authorities determine that selling physical books and e-book selling are individually separate relevant markets. Does an initial evaluation suggest that any single firm has monopoly power, as defined by the antitrust authorities?

b. Suppose that in fact there is really only a single book industry, in which firms compete in selling both physical books and e-books. According to the antitrust authorities' initial test of the potential for monopoly power, is there actually cause for concern?

Why do you suppose that nearly all of the world's antitrust authorities agree that collusive conspiracies to restrain trade and fix prices are illegal?

Why do you suppose that a growing number of behavioral economists are calling for adoption of more pragmatic approaches to formulating regulations? Explain briefly.
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