Instructions for Candidates

Task

Instruction to candidates:

• Please carefully read the instructions before you submit your answers.

• Please type your answers on a Word document.

• Please include the following information On your document:

o CANDIDATE NUMBER (6-DIGIT)

o MODULE CODE and MODULE NAME

• Please use ARIAL font, Size: 12 point and 1.5 spacing.

• You can only submit one document. You must combine all answers, figures, tables, and calculations into one document. If you have any hand written calculations or answers, scan or take a photo, and insert into the word file.

• Save your FILE as “Module Code – Candidate Number”.

o For example: BS2298 -123456

o This will also be your TITLE when you submit via TURNITIN.

• If you have problems submitting your answers via TURNITIN, please email [email protected] with the following information:

o Full Name

o 9-digit Student ID Number

o 6-digit Candidate Number

o Screenshot of the error message

o Attach your word or PDF document with the answer on it

• NOTE: Spot checks via oral verification may apply to this module.

Examination paper instructions to candidate:

• Section A: Answer ALL questions.

• Section B: Answer ALL questions.

• Section C: Answer BOTH questions.

• Each section will be weighted as follows:

o Section A: 20%

o Section B: 20%

o Section C: 60%

Answer ALL questions in this section.

In this section you are being assessed more on the logic underlying the exercise, rather than on simply the numerical values of the answers themselves. Hence, please ensure that when answering questions in this section you do the following: (a) show all workings, (b) clearly signpost each step and (c) describe how you obtain quantity, price, profits etc. from the steps you use.

Please answer questions in this section by handwriting and insert a picture of your handwritten answer with your answers for the remaining sections.

A monopoly manufacturer produces a product at a marginal and average cost of 4. The product is then sold on to a monopoly retailer who sells on to final consumers. The retailer faces a demand function given by q=24-p, where is the retail price. Assume the manufacturer charges the retailer just a price per unit and the retailer faces no additional costs.

a. What price will the manufacturer charge to the retailer? (6 marks)

b. What price will the retailer charge to consumers? (1 marks)

c. How much profit does the retailer make? (1 marks)

d. How much profit does the manufacturer make? (1 marks)

e. Suppose now the manufacturer and the retailer merge. What price will the merged firm charge to consumers? What is the profit of the merged firm?

f. Is the merger profitable? Briefly explain your answer. (4 marks)

g. How does the merger affect consumer surplus? (3 marks)

Answer ALL questions in this section.

In this section you are being assessed on the understanding of relevant economic theory and explanation of the intuition. For each of the following statements, decide whether they are TRUE or FALSE and provide clear and concise explanations for your answers. [Maximum 150 words for each statement]

Question 1:

a. A monopolist selling electric cars in Birmingham finds it unprofitable to raise price by 10% above the current level. Thus, the relevant market is electric cars in Birmingham. (4 marks)

b. Horizontal mergers between firms producing close substitutes are more likely to harm economic welfare. (4 marks)

c. Resale price maintenance (RPM) is a hard-core restriction in competition policy because it has no efficiency justification. (4 marks)

d. Coordinated effects are less likely when there are efficiency gains from the merger. (4 marks)

e. If all firms in an industry make positive profits, the industry is better described by Cournot competition, as firms would earn zero profit under Bertrand competition. (4 marks)

Answer both questions in this section. [Maximum 1000 words for each question]

Question 1: In December 2020, following an investigation by the Competition and Markets Authority (CMA), 2 UK-based companies who supply groundworks products to some of the nation’s largest construction firms, have been fined £15m for colluding illegally to reduce competition and maintain or increase prices for over 2 years. This involved sharing confidential information on future pricing and commercial strategy and monitoring each other’s prices.

a) Use economic theory to explain how firms can sustain collusion in the market when they interact repeatedly. (12 marks)

b) When does economic theory suggest that collusion is more likely to be successful? (12 marks)

c) How does information sharing and monitoring help sustain the collusion in the above case? (6 marks)

Question 2: Back in 2011, the world’s largest provider of chipsets for devices (e.g. smartphones, tablets) running on 4G network signed an agreement with one of the leading device manufacturers, committing to make significant payments to this manufacturer on condition that the manufacturer would exclusively use its chipsets. This was found to be violating competition law.

a) Use economic theory to explain why such an agreement violates competition law and can hinder competition in the market. (18 marks)

b) If you are working for the chipsets provider, how can you use economic theory to defend your company? (12 marks)