MSIN0181 Understanding the Information Economy

Examination Paper

2021/22

Academic Misconduct: Academic Misconduct is defined as any action or attempted action that may result in a student obtaining an unfair academic advantage. Academic misconduct includes plagiarism, obtaining help from/sharing work with others be they individuals and/or organisations or any other form of cheating. Penalties for Academic Misconduct vary, up to and including automatic expulsion from UCL for those found to have engaged in contract cheating (students commissioning others to complete work on their behalf. Definitions and penalties for Academic Misconduct are outlined in the Academic Manual.

Referencing: In an exam no external research would normally take place and therefore the matter of references does not arise. This applies to this online assessment. Whilst you are encouraged to draw upon your learning from module materials, including lecture slides, books, articles, you should communicate your learning in your own words and, where appropriate, calculations. However, if you were to make direct use of somebody else’s work, either by memorising it or copying it word for word, you must reference and provide full citation for ALL sources used, including articles, text books, lecture slides and module materials.  This includes any direct quotes and paraphrased text.  If in doubt, reference it. If you need further guidance on referencing please see UCL’s referencing tutorial for students here:  https://library-guides.ucl.ac.uk/referencing-plagiarism/welcome.Failure to cite references correctly may result in your work being referred to the Academic Misconduct Panel.

Examination length: TWO (2) hours

There is ONE (1) section to the examination paper.

Students should answer all questions. There are five questions, each of which is worth TWENTY (20) marks. Some questions refer to the Google Shopping, Android, Microsoft competition cases and the QWERTY product standardisation case which were discussed and fully referred to in class.

You are advised to allocate your time between the questions in proportion to the marks available.

Module Leader: Peter Antonioni

Internal Assessor: Manzur Rashid.

TURN OVER

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CONTINUED

EXAM PAPER

This section consists of FIVE (5) compulsory question. Candidates should attempt ALL parts of the question.  Each question in this section is worth TWENTY (20)marks. Essay questions may be written using a bulletpoint structure.

1.  

a) Explain, with an example, what the term “cellophane fallacy” means within the context of a competition or antitrust case.

        [4marks]

b)In Microsoft, the European Commission ruled that Microsoft’s business practice of including Windows Media Player with OEM installs of the Windows operating system was unlawful. What is the specific unlawful conduct that Microsoft has engaged in called, and why is it not an offence for Apple to bundle iTunes with Mac OSX in the same way as Microsoft did with Windows Media Player?

         [6marks]

c) An often stated principle of competition law is that if one owns a port, one must allow all ships to dock under the same terms. With reasons, explain whether this prevents the owner of the port from engaging in price discrimination.

           [4marks]

d) In a hypothetical example given by a training consultancy, you are given the information that Soylent Green holds a dominant position in the hypothetical industry. You are told that it produces for a marginal cost of 5 (five), receives a price of 10 (ten) and faces a market demand with an own price elasticity of demand of - 0.5 (minus a half). One of your colleagues quickly points out that there must be some mistake with those figures. Showing any working out, is she correct?

[6marks]

2.

a) Giving reasons for your answer, does the failure of the DVORAK keyboard to dislodge the QWERTY keyboard as the standard in the typewriter industry constitute a case of market failure?

[10 marks]

b) In the “Fable of the Keys” Liebowitz and Margolis question Paul David’s conclusion on the dominance of the QWERTY keyboard, and focus the theoretical aspects of their answer on David not considering the degree to which switching costs are relevant. What do they mean by the term ‘switching costs’?

[4 marks]

c) Briefly explain the role of any two underlying factors in determining the degree to which switching costs are relevant to a discussion about technological choice.

[6 marks]

3.  Barksdale and Stanfield are two companies in the hobbyist construction brick industry, making kits for modelling enthusiasts based on the specifications of production sports cars. Both are releasing a new, identical, model of the Australian “Pursuit Special” car. Hobbyist World magazine has got hold of an internal report on Barksdale’s view of the market, and have asked you, as an economics consultant, to take a lookat the figures in the report and explain some of their implications to the magazine.

The report estimates that demand in the market is given by

P = 120 – Q

Where Q is the sum of Barksdale’s and Stanfield’s output so that

Q = qs + qb.

Marginal revenue is therefore derived as

MRb = 120 – 2 qb – qs

for Barksdale and

MRs = 120 – 2 qs – qb

for Stanfield.

The two firms have identical total costs:

TCb = qb2

and

TCs = qs2

Making marginal cost for the two firms:

MCb = 2qb

For Barksdale, and

MCs=2qs

for Stanfield.

a) Given the above information, calculate the profit made by each of the two companies.

[12 marks]

Staff at the magazine often say that they believe that the industry behaves like a cartel. Starting from the assumption that a cartel could be represented as a monopoly facing demand

P = 120-Q

and obtaining marginal revenue of

MR = 120 – 2Q for an output of Q that is produced where

MC = 2Q,

Then

b) What output and price would a hypothetical cartel produce and, from this, do you believe there is any reason to say that the firms are behaving as a cartel?

[8 marks]

4.

a) Explain briefly, with a diagram why it is more usual to regulate a natural monopoly so that price is average cost rather than choosing marginal cost for the benchmark. [6 marks]

b) What three conditions do firms need to satisfy in order to be able to engage in price discrimination? [5 marks]

c) A firm operating in a two sided market such as television or a social network, will cause a deadweight loss associated with this business model. Why is that, and is there a way to stop this from occurring? [9 marks]

5.

a) Information goods are defined by their non-rival nature (that is the marginal cost of getting an extra product to another person zero). Does this imply they should be treated as public goods?[6 marks]

b) Information goods are not generally sold through perfectly competitive markets. Explain why that is the case, and explain which market structures tend to emerge in sectors of the information industries. Under what circumstances will there still be competition in these markets, even if that competition is imperfect? Please draw examples from any of the companies or markets you have studied (five of the marks available will be reserved for examples).[14marks]

END OF PAPER

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MSIN0181 2021/22