Fox Broadcasting Company and Big Gator
Name _________________________ Homework for Chapter 3 (adapted from end-of-chapter questions)
3. Matilda Bottlers bottles and distributes wines and spirits in Australia. Big Gator is a conglomerate that manufactures, among other things, a popular lager beer. By virtue of a life time contract, Matilda has exclusive rights to bottle and distribute Big Gator beer in New South Wales, the largest state in Australia. Matilda uses its monopsony power to pay a lower price for Big Gator beer than do bottlers I other states. Is this sufficient justification for Big Gator to buy out Matilda Bottlers? Explain. (1 point)
4. In each of the following situation, why are firms likely to benefit from vertical integration? (1 point each)
a. A grain elevator is located at the terminus of a rail line.
b. A manufacturer of a product with a national brand-name reputation uses distributors that arrange for advertising and promotional activities in local markets.
c. A biotech firm develops a new product that will be produced, tested, and distributed by an established pharmaceutical company.
10. Suppose that during their affiliation, Netflix paid Fox Television Studios (Fox) $2 million for producing and delivering to Netflix each episode of the 3rd season of “The Killing.” Suppose further that the contract included certain script requirements for Netflix product placement, and Fox spent an additional $50,000 to meet those requirements. Then suppose that after pre-screening 5 episodes, Netflix claimed that Fox’s efforts failed to live up to the contractual requirements. (2 points each: 1 for explaining the concept, and 1 for applying it correctly)
a. Was either party earning rent? What assumptions do you have to make to assert this?
b. Was either party earning quasi-rent? What assumptions do you have to make to assert this?
c. Could Fox have held up Netflix? And/or could Netflix have held up Fox? Explain.
3. Matilda Bottlers bottles and distributes wines and spirits in Australia. Big Gator is a conglomerate that manufactures, among other things, a popular lager beer. By virtue of a life time contract, Matilda has exclusive rights to bottle and distribute Big Gator beer in New South Wales, the largest state in Australia. Matilda uses its monopsony power to pay a lower price for Big Gator beer than do bottlers I other states. Is this sufficient justification for Big Gator to buy out Matilda Bottlers? Explain. (1 point)
4. In each of the following situation, why are firms likely to benefit from vertical integration? (1 point each)
a. A grain elevator is located at the terminus of a rail line.
b. A manufacturer of a product with a national brand-name reputation uses distributors that arrange for advertising and promotional activities in local markets.
c. A biotech firm develops a new product that will be produced, tested, and distributed by an established pharmaceutical company.
10. Suppose that during their affiliation, Netflix paid Fox Television Studios (Fox) $2 million for producing and delivering to Netflix each episode of the 3rd season of “The Killing.” Suppose further that the contract included certain script requirements for Netflix product placement, and Fox spent an additional $50,000 to meet those requirements. Then suppose that after pre-screening 5 episodes, Netflix claimed that Fox’s efforts failed to live up to the contractual requirements. (2 points each: 1 for explaining the concept, and 1 for applying it correctly)
a. Was either party earning rent? What assumptions do you have to make to assert this?
b. Was either party earning quasi-rent? What assumptions do you have to make to assert this?
c. Could Fox have held up Netflix? And/or could Netflix have held up Fox? Explain.