Chapter 1: Competition Market Structure - Read The Disney Ca ✓ Solved

Chapter 1 Competition Market Structure1 Read The Disney Case And

Chapter 1: 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. Max Amount Buyer Would Pay for the Car Buyer 1 $40,000 Buyer 2 $35,000 Buyer 3 $30,000 Buyer 4 $25,000 Buyer 5 $20,000 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?

Sample Paper For Above instruction

Introduction

The concepts of market structure, demand analysis, and market power are fundamental in understanding the dynamics of competitive markets. The Disney case offers a practical illustration of how demand varies with price changes and external factors, while the case of the Detroit newspaper provides insight into market classification before and after mergers. This paper explores these aspects, along with theoretical questions about consumer willingness to pay, market competition, and market power in digital advertising, exemplifying core principles of microeconomics.

Demand Curve Analysis of Disneyland (1980-1984)

To analyze Disneyland's demand from 1980 to 1984, we begin by constructing a downward-sloping demand curve reflecting the inverse relationship between price and quantity demanded. Between these years, Disneyland experienced shifts in demand due to price increases, external economic conditions, and events like the 1984 Los Angeles Olympics. For instance, a 6% ticket price increase in this period would typically cause movement along the demand curve, resulting in a decrease in quantity demanded, ceteris paribus. Conversely, factors such as higher gas prices and demographic changes would lead to a shift of the demand curve itself—either outward or inward—indicating a change in consumer preferences or purchasing power.

Impact of External Factors

External variables such as higher gas prices could decrease demand for Disneyland trips due to increased travel costs, shifting the demand curve leftward. Demographic shifts, perhaps towards younger or older populations, could alter the demand magnitude. The 1984 Olympics likely increased demand temporarily due to heightened tourism and international visitors, shifting the demand curve outward during that period.

Market Structure of Detroit Newspapers

Before the merger, the Detroit newspaper market was characterized by monopolistic competition or an oligopolistic structure, with several newspapers competing for readership and advertising revenue. After the merger of the Detroit News and Free Press, the market transitioned toward a monopoly, with a single dominant entity controlling most circulation and advertising. This concentration indicates that mergers can significantly diminish competition, potentially leading to monopoly power and decreased consumer choice, raising concerns about the regulation of such consolidations in media markets.

Willingness to Pay and Market Demand

The table listing maximum willingness to pay by different buyers for a car allows us to analyze demand. If cars are priced at $30,000, buyers 1 ($40,000), 2 ($35,000), and 3 ($30,000) would purchase, totaling three cars demanded at that price. Under perfect competition with a marginal cost of $25,000, all buyers willing to pay this amount or more will purchase, thus three cars are sold. When the marginal cost drops to $20,000, the quantity demanded increases as the lower cost incentivizes productions for more buyers, possibly increasing output depending on supply constraints.

Market Power in Online Search and Advertising

Google's dominant share of online searches (~64% in November 2010) confers significant market power. If Google were to charge for searches, the demand might decrease slightly but likely remains relatively inelastic given the lack of substitutes, especially if users and advertisers are heavily reliant on Google’s platform. Google’s ability to influence prices in the search market is constrained by competition from Bing and Yahoo; however, in the online advertising market, Google exhibits considerable market power. Its ability to charge advertisers for targeted ads demonstrates monopolistic pricing power, akin to a dominant firm with control over the relevant market segment. If Google were to achieve near-total market dominance, it could potentially raise prices for search services and advertising, leveraging its monopoly position, much like monopolists in traditional markets.

Conclusion

Analyzing the Disney demand variations, newspaper market structure, and the online search and advertising market demonstrates the relevance of microeconomic principles in real-world scenarios. Market power, external economic factors, and consumer preferences all interact to shape market outcomes, emphasizing the importance of regulatory policies to ensure competitive markets and protect consumer interests.

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