Question

Please explain thoroughly.

Which of the following is true about contracts as a barrier to entry?
(a) A buyer should never agree to an exclusive contract with a monopolist seller
(b) A buyer will sometimes find it worthwhile to sign a contract with an monopolist seller
upstream that prevents entry upstream
(c) Exclusive deals always result in lower consumer surplus

(d) An exclusive deal between two parties makes it less likely that they will enter into relationship-
specific investments

Which of the following is true about auctions?
(a) It is a weakly dominant strategy to bid one’s valuation for the good in a first price auction
(b) It is a weakly dominated strategy to bid more than one’s valuation for the good in a second
price auction
(c) In a second price auction where each bidder bids his valuation for the good, the bidder
with the lowest valuation will sometimes win the good
(d) None of the above

Which of the following is true about auctions?
(a) A second price auction always delivers more revenue to the auctioneer than a first price
auction because every bidder will reveal their valuation for the good

(b) The Revenue Equivalence Theorem says that under certain conditions, first price and sec-
ond price auctions yield the same amount of revenue to the auctioneer in expected value

(c) The Winner’s Curse in auctions is when the losers of an auction promise future revenge on
the winner in the form of higher bids
(d) The Winner’s Regret Theorem says that most winners in a first price auction will end up
regretting having won

Suppose there are three firms, one of which has 80% market share, andthe other two which each have 10% market share. What will be the change in the Herfindahl-Hirschman Index if the largest firm purchased one of the two smaller firms so that there are two firms remaining, one with 90% market share and one with 10%.

(a) A decrease of 1350
(b) A decrease of 1600
(c) An increase of 1600
(d) An increase of 1350

Answer 1

1

B

When a buyer enters into a contract with the seller, then he becomes bound the buy the product of that seller. It make him unavailable as market to the new firms who want to enter into the market. So, it acts as a barrier to entry.

2.

B.

In this bidding strategy, a bid that is higher than the bid and valuation of competitor is made. It makes highest bidder to win the auction.

3.

C.

4.

C.

Working note:

Initial HHI = 80^2 + 10^2 + 10^2 = 6600

Final HHI = 90^2 + 10^2 = 8200

Change in HHI = 8200 – 6600 = 1600