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Chapter 27: Q. 2- For Critical Thinking (page 619)

Suppose that a firm's self-interested owners or managers have no moral or ethical qualms and do not anticipate being caught if they agree to participate in a collusive conspiracy. Why might they still decide not to do so if only a moderate revenue gain would result? (Hint: How would engaging in the collusion techniques listed in Figure 27-4affect a conspiring firm's total costs?)

Short Answer

Expert verified

Collusion happens within about an industry inside the science of economics and market competition when competing firms collaborate for mutual benefit. This is the basis for Smith's thorough overview of the importance of the self in economics.

Step by step solution

01

Introduction.

The concept of identity owners comes from the idea that when stakeholders act or interact in self-interested ways, unintended subsequently results for society as a whole occur.

This is the foundation of Smith's overarching explanation of the significance of self in economics.

02

Ethical qualms.

A twinge or sudden feeling of dread as well as unease, especially regarding human morality; compunction.

03

A collusive plot.

Collusion occurs within an industry as in study of finance and market competition when rival companies collaborate for mutual benefit. Conspiracy is typically defined as a contractual between two or more resellers to take any action to suppress seller competitive market.

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Most popular questions from this chapter

An years past, firms around the world have secretly engaged in collusive agreements to restrain production and push prices above competitive levels.

Evidence compiled by government officials investigating such agreements has revealed that conspiring firms often utilize similar methods of establishing and enforcing collusive restraints of trade. Most agreements, for instance, assign to each firm an allowed market share, a permitted region of operations, or an approved set of customers. In addition, participating firms commonly are required to exchange sales information so that they can monitor adherence to their agreements to restrain trade. In this chapter, you will learn why firms that typically utilize these techniques to formulate and maintain collusive agreements engage in secret conspiracies: Such agreements are illegal under U.S. antitrust laws.

Identify alternative theories aimed at explaining the behavior of regulators

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).

An years past, firms around the world have secretly engaged in collusive agreements to restrain production and push prices above competitive levels.

Evidence compiled by government officials investigating such agreements has revealed that conspiring firms often utilize similar methods of establishing and enforcing collusive restraints of trade. Most agreements, for instance, assign to each firm an allowed market share, a permitted region of operations, or an approved set of customers. In addition, participating firms commonly are required to exchange sales information so that they can monitor adherence to their agreements to restrain trade. In this chapter, you will learn why firms that typically utilize these techniques to formulate and maintain collusive agreements engage in secret conspiracies: Such agreements are illegal under U.S. antitrust laws.

Understand the foundations of antitrust regulations and enforcement

Consider the data from Problem 27-11. Suppose that antitrust authorities have determined that there are separate relevant markets for e-books and physical books. In addition, these authorities perceive that a monopoly situation exists that can be challenged on legal grounds if the value of the Herfindahl-Hirschman Index exceeds 5000 . On the basis of this criterion, do the antitrust authorities conclude that there are grounds for a legal challenge in either market? Explain.

A few years ago, the U.S. government created a "Do Not Call Registry" and forbade marketing firms from calling people who placed their names on this list. Today, an increasing number of companies are sending mail solicitations to individuals inviting them to send back an enclosed postcard for more information about the firms' products. What these solicitations fail to mention is that they are worded in such a way that someone who returns the postcard gives up protection from telephone solicitations, even if they are on the government's "Do Not Call Registry." In what type of behavior are these companies engaging? Explain your answer. (Hint: Are these firms meeting the letter of the law but violating its spirit?)
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