[Joseph_E._Stiglitz,_Carl_E._Walsh]_Economics(Bookos.org) (1)

long-distance service between major cities more cheaply
than AT&T, but AT&T argued against allowing firms to
enter only the long-distance market. If those other firms
(which had no technological advantage) could actually
have offered long-distance service more cheaply, what
does that imply about cross subsidies in AT&T’s pricing
of local and long-distance service? What would have
happened if AT&T had been required to continue offering
local service at the same price, but competition had
been allowed in the long-distance market?
2. Explain the incentive problem involved if regulators
ensure that a natural monopoly will be able to cover its
average costs.
3. Explain how some competition, even if not perfect,
may be an improvement for consumers over an unregulated
natural monopoly. Explain why such competition
will not be as good for consumers as an extremely sophisticated
regulator, and why it may be better than many
real-world regulators.
4. Smalltown, USA, has one bookstore, one newspaper, one
movie theater, one nightclub, one grocery store, one hair
salon, one college, and one department store. Does it
follow that each of these is a monopolist? In each case,
explain what sources of competition the firm might face
that would limit its market power.
5. For each pair, explain whether you think they are part of
the same or separate markets.
(a) Ice cream manufacturers and frozen yogurt
manufacturers
(b) Doctors and dentists
(c) Doctors and chiropractors
(d) Public universities and private universities
(e) Trade schools and universities
6. Before the 1980s, many industries in New Zealand were
dominated by a single firm. To limit the social cost of
monopoly, these firms were heavily regulated by the
government. After winning election in the 1980s, New
Zealand’s Labour Party shifted the government’s focus
from regulating domestic firms to eliminating restrictions
on imports. Explain why reducing the barriers that
had prevented New Zealanders from buying imported
goods could reduce the market power of the domestic
firm, even if there continues to be only one domestic
firm in the industry.
REVIEW AND PRACTICE ∂ 309