Solution Manual For Industrial Organization: Contemporary Theory and Empirical Applications, 5th Edition

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1Chapter 1: Industrial Organization: What, How and Why?Learning Objectives:Students should learn:Description of Industrial Organization1.The Nature of Industrial Organization.2.The motivation for formal analysis of imperfect competition.3.A brief history of U.S. antitrust policies and enforcements.4.Global antitrust actions and measurement.Suggested Lecture Outline:Spend one lecture fifty-minute long lecture on this chapter. The topics that may be covered are:1.Description of Industrial Organization.2.Different approaches to studying Industrial Organization.3.Antitrust policiesand history in the U.S.4.Examples / Case Studies.Suggestions for the Instructor:1.Clearly explain the organization of your course on the first day of class.2.Motivate the students about Industrial Organization with examples / case studies that thestudents can relate to–particularly with historic examples with names the students willrecognize like Standard Oil, Kinney Shoes, Alcoa Aluminum, etc.3.Make the students solve / discuss few problems from the end of Chapter 1.Solutions to the End of the Chapter Problems:Problem 1Many examples imperfectly competitive markets are possible. Common ones include: (1)Automobiles, (2) Beer, (3) Telephone/Telecommunications, (4) Jet Aircraft, (5) PatentedPharmaceuticals, and (6) Computer Operating Systems, .Large entry costs, scaleeconomies,network effects and government regulations all play a role in these examples.Problem 2In a perfectly competitive market, each agent is a price taker. That is, decisions of individualfirmsand / or consumesr do not affect the market price or environment. Therefore, there is noroom for strategic behavior in a perfectly competitive market.Problem 3In general, the Clayton Act was designed to prevent monopoly “in its incipiency” by makingexplicitly illegal a number of business practices. In particular, Section 2 prevents strategicmanipulations of the upstream / downstream market by a firm with market power. Under Section2 of the Clayton Act, it is illegal to “discriminate in price between different purchasers of

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