Consider the data from Problem 27-11. Suppose that antitrust authorities have determined that the relevant market includes both e-books and physical books. These authorities perceive that a monopoly situation exists that can be challenged on legal grounds if the value of the Herfindahl- Hirschman Index exceeds 5,000. On the basis of this criterion, do the antitrust authorities conclude that there are grounds for a legal challenge? Explain.

Problem 27-11

Consider the following fictitious sales data (in thousands of dollars) for both e-books and physi- cal books. Firms have numbers instead of names, and Firm 1 generates only e-book sales. Suppose that antitrust authorities' initial evaluation of whether a single firm may possess "monopoly power" is whether its share of sales in the relevant market exceeds 70 percent.

a. Suppose that the antitrust authorities determine that selling physical books and e-bookselling are individually separate relevant markets. Does an initial evaluation suggest that any single firm has monopoly power, as defined by the antitrust authorities?

b. Suppose that in fact there is really only a single book industry, in which firms compete in selling both physical books and e-books. According to the antitrust authorities' initial test of the potential for monopoly power, is there actually cause for concern?

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E-Book Sales Sales $ 750 50 50 50 50 50 $1,000 Firm 1 2 3 4 5 6 Total Physical Book Sales Firm 2 N34506 WN 3 4 5 6 Combined Book Sales Sales $4,200 2,000 1,950 450 400 5 6 $9,000 Firm 2 3 4 1 Sales $ 4,250 2,050 2,000 750 500 450 $10,000