As this chapter explains, a monopoly is an industry structure ...

[ts19998]

As this chapter explains, a monopoly is an industry structure where only one firm provides a good or service that has no close substitutes. This question explores the last part of this definition further. a.
 
  At one time Sirius Satellite Radio and XM Satellite Radio were the only two satellite radio providers in the US. The Department of Justice (DOJ) and the Federal Communications Commission (FCC) approved the merger of the two companies in 2008 even though SiriusXM would then control 100 percent of the satellite radio market. How do you think the two companies convinced the DOJ and the FCC to allow the merger to proceed? b. In 1947, the United States government charged the DuPont Company with a violation of the Sherman Act. The government argued that DuPont was monopolizing the cellophane market. At trial, the government showed that DuPont produced nearly 75 percent of all of the cellophane sold in the US each year. Nonetheless, the U.S. Supreme Court ruled in favor of DuPont and dismissed the case. How do you think DuPont convinced the Supreme Court that it did not violate the Sherman Act?

Question 2

A decrease in the real interest rate will
 
  A) increase consumption and investment. B) increase consumption and reduce investment.
  C) increase saving and investment. D) decrease investment and government spending.

[vseab]

Answer to Question 1

a. Sirius and XM argued that there were many close substitutes for satellite radio and that they would therefore not be able to exercise market power. Consumers, for example, could listen to music over the Internet through Pandora and similar sites, from HD Radio, and from MP3 players connected to a car's sound system.
b. DuPont argued successfully that there are many other flexible wrapping materials that are close substitutes for cellophane such as aluminum foil and waxed paper. DuPont had less than 20 percent of the overall market for flexible wrapping material. The Court agreed that there were so many close substitutes for DuPont's product that DuPont was unable to exercise significant market power.
See http://supreme.vlex.com/vid/united-states-v-pont-nemours-amp-20013145 on the DuPont case. See http://www.businessweek.com/stories/2008-07-25/the-fcc-approves-the-xm-sirius-mergerbusinessweek-business-news-stock-market-and-financial-advice and http://www.nytimes.com/2008/03/25/business/25radio.html?_r=0 on the Sirius-XM case.

Answer to Question 2

A

[ts19998]

TYSM

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