Imagine that you are the manager Bauleni Wireless Communications Limited, a monopolist cell phone. There are two types of consumers; business consumers (B) who value each minute of communication V = K800. And Personal customers (P) who have minute of communication at VP = k600. That is, if consumer i (B or P) talks of minutes per month and pays a monthly fee, the utility function is given by Ui = Viq - P.
You do not know which customer is of which type and would like to offer the two different plans: a business plan with a flat monthly fee priced at P = K650 with of minutes included and a personal use plan with a flat monthly fee Pp = 350,000 which includes of p minutes. You want each customer to take a plan designed for him/her. Assume your customer does not want to have extra minutes.
1.
a. Your marketing Manager proposes to award business customers of B = 1200 and personal awareness of p = 800. Will it work? Why or why not?
b. Can you find the profit maximizing way to allocate minutes to the two plans so that each type of customer takes plan designed for him/her?
2.
a. What is industrial economics?
b. Outline the salient features of the structure - conduct - Performance (SCP) Model
c. Why was this methodology criticized?
d. What approach does the new Empirical Industrial Organization (NEIO) use?
3. A. What are the main features of kinked demand curve?
Show it graphically.
B. "The market approach to merger analysis requires the identification of market power in a relevant antitrust market for the merged entity". Discuss.
C. Explain how market concentration is determined
4. An industry consists of four (4) firms with sales of K2.1 billion, K5 billion, K0.5 billion and K0.7.
a. Calculate the Herfindahl - Hirschman index (HHI) and the four - firm concentration ratio (C4)
b. Interpret the results you found in (a) above.
5.
A. What is market power?
B. Distinguish the Herfindahl - Hirschman index (HHI) and Lerner's index (LI) in industrial economics?
C. Discuss the theory of advertising as a exogenous sunk cost.
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