Compute the Herfindahl for this market, showing how you arrived at this number.

Managerial Economics Homework for Chapter 5 Questions

Managerial Economics Homework for Chapter 5 Questions

Question

Homework for Chapter 5 (modified questions from the end of the chapter)

[13 points possible]

  1. Why are the concepts of own and cross-price elasticities of demand
    essential to competitor identification and market definition for companies in
    the foodindustry? (2 points possible)

3. How would
you characterize the nature of competition among small food companies? Are
there submarkets with distinct competitive pressures? Are there important
substitutes that constrain pricing? Given these competitive issues, how can an organic
frozen foods producer be profitable? (3
points possible)

4. How does
industry-level price elasticity of demand shape the opportunities for making
profit in an industry? How does the firm-level price elasticity of demand shape
the opportunities for making profit in an industry? (2 points possible)

7. Numerous
studies have shown that there is usually a systematic relationship between
concentration and price. What is this relationship? Offer two brief
explanations for this relationship. (2
points possible)

9. The
following, adapted from a merger case in 2014, were the approximate U.S. market
shares of different cigarette companies: Altria, 47 percent; Reynolds American, 26
percent; Lorillard, 14 percent;Imperial,
5 percent; total for all other brands, 8 percent. Assume “all other brands” each
have less than a one-percent share.

(a) Compute
the Herfindahl for this market, showing how you arrived at this number. (1 point possible)

(b) Suppose
thatReynolds
American were to acquireLorillard, as it has – BUT suppose Reynolds
American did not sell off anyLorillard
brands [unlike the actual deal]. Compute
the post-merger Herfindahl, showing how you arrived at this number. (1 point possible)

(c) Would federal
antitrust agencies be likely to become concerned to see a Herfindahl increase
of the magnitude you computed as [(b) – (a)], as well as the projected SSNIP, and
challenge the merger? Explain why or why not. (2 points possible)


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