Industrial Organization: Markets and Strategies Paul Belleáamme and Martin Peitz published by Cambridge University Press Part VI. Theory of competition policy Exercises & Solutions

Exercise 1 Industries with cartels Brieáy describe and analyze a case of your choice concerning a price- or quantity-Öxing cartel (please not OPEC). The following questions may be useful to bear in mind: What are the relevant characteristics of the industry? What was the scope of the cartel? How was the cartel enforced? What were the e§ects of the cartels? How did the competition authority or court argue and what was the decision, if any? Exercise 2 Collusion and pricing Two (advertising-free) newspapers compete in prices for an inÖnite number of days. The monopoly proÖts (per day) in the newspaper market are M and the discount rate (per day) is . If the newspapers compete in prices, they both earn zero proÖts in the static Nash equilibrium. Finally, if the Örms set the same price, they split the market equally and earn the same proÖts. 1. The newspapers would like to collude on the monopoly price. Write down the strategies that the newspapers could follow to achieve this outcome. Find the discount rates for which they are able to sustain the monopoly price using these strategies. 2. On Sundays, the newspapers sell a weekly magazine (that can be bought without buying the newspaper). The monopoly (competitive) proÖts when selling the magazine are also M (zero). 3. For which discount rates can the monopoly price be sustained only in the market for magazines? (Write down the equation that characterizes the solution.) Compare the solution found in question 1 and 2 and comment brieáy. 4. For which discount rates can the monopoly price be sustained both in the market for newspapers and in the market for magazines? (Write down the equation that characterizes the solution.)