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Managerial Decisions for Firms with Marketing Power

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Antitrust authorities at the Federal Trade commission are reviewing your company's recent merger with a rival firm. The FTC is concerned that the merger of the two rival firms in the same market will increase market power. A hearing is scheduled for your company to present arguments that your firm has not increased its market power through this merger. Can you do this? How? What evidence might you bring to the hearing?

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Market power is indicated by how well a firm can maximize its profits. If by cutting quantity, the firm is able to significantly increase revenues, it indicates that it has inappropriate market power. On the other hand, when rival companies compete head to head, it often results in lower prices for consumers. The FTC is therefore very leery of allowing rivals to merge. However, the actual amount of the price increase after the merger will also depend on price elasticity and marginal costs. You could argue that even in the ...

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FTC decision on the merger of rival firms are discussed in 356 words.

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Given that demand for brigde and tunnel travel has fallen due to the recession, should New York's transit authority raise or lower tolls?

Higher unemployment caused by the ression and higher prices have contributed to a substantial reduction during 2008 in the number of vehicles on roads, bridges, and in tunnels. According to The Wall Street Journal (April 28,2009). the reduction in demand for toll bridge and tunnel crossing created a serious revenue problem for many cities. In New York, the number of vehicles traveling across bridges and through tunnels fell from 23.6 million in January 2008 to 21.9 million in January 2009. "That drop presents a challenge, because road tolls subsidized MTA subways, which are more likely to be used as people get out of their cars." In an apparent attempt to raise toll revenue, the MTA increased tolls by 10 percent on the nine crossing it controls.
a. Is MTA a monopolist in New York City? Do you think MTA possesses a high degree of market power?
b. If the marginal cost of letting another vehicle cross a bridge or travel through a tunnel is nearly zero, how should the MTA set tolls in order to maximize profit? In order to maximize toll revenue? How are these two objectives related?
c. With the decrease in demand for bridge and tunnel crossing, what is the optimal way to adjust tolls: raise tolls, lower tolls. or leave tolls unchanged? Explain carefully.

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