OSullivanSheffrinPeres6e.pptVIP

Controlling Market Power:Antitrust and Regulation NATURAL MONOPOLY NATURAL MONOPOLY NATURAL MONOPOLY NATURAL MONOPOLY ANTITRUST POLICY ANTITRUST POLICY ANTITRUST POLICY ANTITRUST POLICY ANTITRUST POLICY ANTITRUST POLICY ANTITRUST POLICY DEREGULATION: AIRLINES, TELECOMMUNICATIONS, AND ELECTRICITY DEREGULATION: AIRLINES, TELECOMMUNICATIONS, AND ELECTRICITY DEREGULATION: AIRLINES, TELECOMMUNICATIONS, AND ELECTRICITY * * of 23 Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall. Microeconomics: Principles, Applications, and Tools O’Sullivan, Sheffrin, Perez 6/e. C H A P T E R 13 Controlling Market Power: Antitrust and Regulation * of 23 Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall. Microeconomics: Principles, Applications, and Tools O’Sullivan, Sheffrin, Perez 6/e. FERNANDO QUIJANO, YVONN QUIJANO, AND XIAO XUAN XU P R E P A R E D B Y In 1997, a U.S. court blocked the proposed merger of Staples and Office Depot, the nation’s two largest office- supply retailers. Microeconomics: Principles, Applications, and Tools O’Sullivan, Sheffrin, Perez 6/e. A P P L Y I N G T H E C O N C E P T S 1 2 How does a decrease in demand affect the price of a regulated monopoly? A Decrease in Demand Increases the Price of Cable TV What are the trade-offs with a merger? Satellite Radio Merger Does competition between the second- and third-largest firms matter? Heinz and Beech-Nut Battle for Second Place How does a merger affect prices? Xidex Recovers Its Acquisition Cost in Two Years 3 4 13.1 FIGURE 13.1A Natural Monopoly Uses the Marginal Principle to Pick Quantity and Price Because of the indivisible input of cable service (the cable system), the long-run average-cost curve is negatively sloped. The monopolist chooses point a, where marginal revenue equals marginal cost. The firm serves 70,000 subscribers at a price of $27 each (point b) and an average cost of $21 (point c). The profit per subscriber