Questions
1. Do you believe the labels that they were not acting in their own self-interest?
I do not believe that the labels were not acting in their own self-interest. By setting a price floor for their CDs (minimum advertised pricing) they were effectively able to control the revenue they would get. This ‘minimum price’ was set high and this led to higher profit margins at the expense of the consumers.2. Is this a price-fixing scheme or a pure case of altruism?
This was a case of price-fixing. By getting retailers to sell their CDs at an agreed price, the music labels were able to control the prices. If the music labels wanted the price to go higher they would adjust the MAP price upwards and vice versa.3. Were the labels acting as predatory monopolists?
No. the labels were not acting as predatory monopolists because they were not fixing prices below cost to discourage entry of new firms. Rather, the prices were fixed above normal.4. Is it illegal to be a predatory monopolist?
Yes, being a predatory monopolist is illegal under anti-trust laws.
5. Are you satisfied as to how this case was resolved?
I am satisfied with how the case was solved because of two reasons: the labels had to compensate those who bought overpriced CDs and that the labels agreed to stop using MAP.DQ-B. Please provide a response to the following discussion question: 1. if the burden of a tax does not depend on who actually pays the tax, why do you think so many taxes (sales taxes and income taxes, for example) are actually paid by firms? (In other words, they’re the ones who send the money to the government.)
The burden of tax is as a result of tax incidence. If a tax is incident on employees, for example income tax, employees will bear the burden of the tax. Many taxes, though not incident on firms, are collected by firms and paid to the government for the purpose of convenience. It would be very cumbersome and expensive for the government to collect income tax from each and every employee in the country. To ease this, the government requires the firms that employ to deduct income tax from the employees’ salaries before paying them. The gross amount deducted is then submitted to the government. Sales tax, likewise, would be so tiresome and expensive to collect from every individual buyer. As such, it is collected from the sellers who charge the sales tax on the qualifying products and submit the gross amount to the government.
2. In 1982, the government withdrew its antitrust case against IBM. IBM was therefore, never found guilty of wrongdoing, but does that mean that IBM was not punished? What about society?
In 1982 when the government withdrew its case against IBM, the effect was felt by IBM long after the case was withdrawn. After the shift from mainframe computers to personal computers in the early 1980s, IBM relinquished its monopoly. After the case however, IBM was very cautious of the watchful eye of government and did everything to avoid a monopoly scenario in the market.
Society on the other hand might have benefited from the entry of other companies into the industry thus more choices were available and the prices were more competitive.
3. How much would you be willing to pay for your town to install a tornado siren (a loud siren that goes off in the case of a tornado)? Is this the same amount as the value you place on a tornado siren? Why or why not? What kind of good is a tornado siren?
I would be willing to pay $50 for my town to install a tornado siren. This amount is not the same amount I would place on a tornado siren because I would expect other members of the town to also contribute. The siren will not be for my personal use but rather for the community.
A tornado siren is a public good. Consumption of the tornado siren by one member in the community will not reduce the amount available for the other members of the community. Also, once the tornado siren is put up, no one in the community can be prevented from using it.
References
Pettinger, T. (2011, October 20). Different Types of Goods – Inferior, Normal, Luxury. Retrieved from Economics Help: http://www.economicshelp.org/blog/790/economics/different-types-of-goods-inferior-normal-luxury/
