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2013 Final

Please use a Blue Book. Watch your time. Pledge and return in a sealed exam envelope. Use jargon even when plain prose will do – behave as an apprentice economist!This final exam has 3 equally weighted sections.

Section I: Price discrimination and Bundling

Explain “bundling” briefly.

Now apply it: Devils Backbone faces the challenge of double marginalization because most sales are to distributors who in turn sell to retailers. But that’s not true for The Tap Room at their Rockbridge brewery: their marginal costs don’t include an intermediate markup. So what should they charge for a pint in their tap room? Or have I mis-specified the problem – is the core decision really an exercise in price discrimination?

As a de facto bar The Tap Room provides two services, beer and a social venue. How would the ability to bundle affect their pricing decision? Make clear your assumptions about the nature of these two goods relative to your base case bundling model.

Section II: Advertising

A. How ought advertising differ between a macrobrewery (AB-InBev) and a microbrewery?

B. Do consumers benefit from an increase in the advertising for Generic Suds? Do breweries? Be sure to use our concepts of PS CS and so on.

Section III: Technology

A. Claim: Argue for / against! Intellectual property rights are obviously important. We as a society benefit from the increase in copyright protection of the Sono Bono Copyright Term Extension Act, jocularly called the Mickey Mouse Protection Act.

B. Claim: Argue for / against! Weaker patents (define!) encourage the use of innovations and on net would be a benefit to society.

Background: Prior to this Act copyright was for the life of the author plus 50 years, and 75 years for corporate works. Now it’s “life plus 70” for authors and “performance + 95” for corporations. Very much not coincidentally, the Act passed in 1998, while Mickey Mouse appeared on the scene in 1923, just slightly less than 75 years earlier.

Now the EU already had a uniform “life + 70” rule for authors, so that the Mickey Mouse Act brought the US into conformity with Europe. (Never mind that in Europe the longer duration was viewed as temporary, reflecting the inability of authors to publish or even collect royalties during WWII.) The EU provides only 70 years of protection for corporate works. That is, you can legally sell a knock-off there, but don’t try that inside the US as Disney very aggressively sues those whom they believe infringe their copyright.

Patent protection is uniform, under the WTO 20 years from filing. Until 1995 it had been 17 years from patent publication in the US, but since the average review was 3 years, the impact of the change was minimal.

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