Homework for Chapter 5 (modified questions from the end of the chapter)
1. Why are
the concepts of own and cross-price elasticities of demand essential to
competitor identification and market definitionfor 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 anorganic
frozen foodsproducer 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 cigarettecompanies: 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 acquire Lorillard, 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 belikely 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)
