Competition & Market Structure:
1. Read the Disney Case and do the following: Draw the demand curve (downward sloping) for Disneyland illustrating the change in demand from 1980 to 1984. Show the distinction between changes in demand moving along the demand curve vs. a shift in demand curve. On the demand curve graph show the impact of Disney's 6% price increase in ticket prices, higher gas prices, changing demographics and the 1984 Olympics in Los Angeles.
2. Read the Detroit News & Free Press case and answer the following questions: What type of market structure(s) best describes the newspaper market in the Detroit area before the merger? What was the market structure after the merger? What does this merger say about the ability of companies to merge and form monopolies?
3. The following table shows the maximum amount of money five potential buyers are willing to pay for a car.
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Max Amount Buyer Would Pay for the Car
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Buyer 1
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$40,000
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Buyer 2
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$35,000
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Buyer 3
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$30,000
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Buyer 4
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$25,000
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Buyer 5
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$20,000
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a) What is the quantity demanded if cars sell for $30,000 each?
b) Under conditions of perfect competition, how many cars are bought if the marginal cost of producing a car is $25,000?
c) How many cars are bought if the marginal cost of producing a car falls to $20,000?
4. According to an internet tracking company, Google had almost 64% of all online searches during November 2010. By comparison Yahoo! And Microsoft had 19% and 11% respectively.
a) If Google started charging for searches, would demand for its service go down a little for a lot? Why?
b) Does Google have market power in the market searches, as defined in the chapter?
c) Google charges advertisers for placing ads next to related searches. For example if you search for Jeep, you will see car-related ads. Does Google have market power in the online advertising market? Why?
d) Suppose Google had almost 100% of the online search market (perhaps by buying Microsoft & Yahoo's search business). Would Google then be able price for online searches? Would Google be able to raise the price it charges to advertisers? Why?