RC-24/04/2013

TWO decades before he won the Nobel prize for economics in 1991, Ronald Coase wrote an essay decrying the poor state of research in industrial organization, the discipline in which he established his reputation. The field, he complained, was devoted to the study of monopoly and antitrust policy. That, he said, made for bad scholarship: an economist faced with a business practice that he cannot fathom, according to Mr Coase, “looks for a monopoly explanation”.

A lot has changed in the 37 years since that lament. The broader research effort for which Mr Coase called has fostered a richer understanding of how firms respond to customers and rivals. Monopoly explanations now compete with theories that see the same behaviour as helpful to consumers. That has made it harder to sort malign from benign business practices. The recent antitrust finding against Intel, a maker of computer chips, is a case in point. After a long investigation, ending in a bulky 524-page verdict, the European Union in May fined Intel €1.06 billion ($1.44 billion) for illegally using its muscle to price AMD, a rival chipmaker, out of the market. Intel rejects the charge of predatory pricing and plans a court appeal. Its lawyers have a block of theory on which to build a defence.

Allegations of predatory pricing have a long history. The Sherman Antitrust Act of 1890, the foundation of America’s competition policy, was partly a response to complaints by small firms that larger rivals wanted to drive them out of business. Trustbusters need to be wary of such claims. Low prices are one of the fruits of competition: penalising business giants for price cuts would be perverse. But in rare circumstances, a big firm with cash in reserve may cut prices below costs in order to starve smaller rivals of revenue. The profits sacrificed in the short term can be recouped by higher prices once competitors are out of the way.

Establishing that a firm is guilty of predation is difficult. If rivals stumble or fail, that may be down to their own inefficiency or poor products, and not because they were preyed upon. Proving that a firm is pricing below its costs is tricky in practice. Even where a reliable price-cost or profit-sacrifice test is feasible, failing it need not imply sinister intent. There are often pro-competitive reasons to forgo short-term profits. Firms with a new product, or a new version of an existing one, may wish to pick a lossmaking price to defray the cost to consumers of switching, or because they expect their own costs to fall as they perfect the production process (video-game consoles are a classic example). Losses would then be a licit investment in future profits.

Q.1

It can be inferred that

a)The author is criticizing Ronald for his lament which has in fact made it difficult to sort malign from benign business practices.

b)The author considers Ronald’s lament unwarranted since a lot has changed in the years after that. c)The broader research effort advocated by Mr. Coase has only led to a lot of confusion in understanding the behaviour of firms.

d)None of these.

e)Both B and C

Q.2

The author in the passage is primarily concerned with

a)Changes in the field of Industrial Organization since Ronald Coase’s essay.

b)Monopolistic Competition

c)The difficulties in distinguishing between ‘malign’ and ‘benign’ business practices.

d)The benefits and curses of competition.

e)None of these

Q.3

Establishing that a firm is guilty of predation is difficult because of all the following reasons except

a)Rivals may not stumble or fail because of their inefficiencies even if they are preyed upon. b)Failing a price –cost test does not necessarily mean that a firm sought to engage in predatory pricing.

c)Firms may be perfecting the production process of a new product which would make costs fall in the long run.

d)Firms may want to decrease price of a new version of an existing product so as to compensate costs to consumers of switching. e)None of these

Christianity suggests that the universe is a theatre of change and imperfection, and God is perfect and unchanging. Apologists, who reconcile Christianity with Greek Philosophy advocate that universe is somewhat different from pure matter. Thus God according to them also is eternal and unchanging he is the primordial cause of everything in the universe. Ideas of Plato and forms of Aristotle became god for them.

St. Augustine, one of the greatest thinkers among the early Christian Philosophers worked most on the theory of apologists. According to him, God created matter out of nothing and then created everything in the universe. Indeed god created time and space also. This principle is in congruence with the Greek Philosophy, that the universe is the result of union of matter and form.

Christian thinkers furthered the Greek philosophy and they attempted to account for the existence of matter. The Christians put the ideas or forms in God’s mind and went on to say that God created matter out of nothing. After he had created matter, he had something upon which to impress ideas for forms.

These Christian philosophers taught that the ideas for forms being in the mind of the god, were divine. Therefore, in so far as things are ideas or forms impressed on matter, they seek God and try to return to him. But matter holds them back. Matter which God has created is the principle, which makes it necessary for things to struggle in their attempt to become divine.

Q.1 The relationship between the Greek Philosophy and the Apologists can be described as of

a)Altruism

b)Compatibility

c)Tolerance

d)Estrangement

e)Conformism

Q.2 According to some Christian philosophers though all forms are created by God

a)Matter present in them impedes their attempts to return to their creator.

b)They still have to struggle to prove their divinity.

c)All may not qualify to be called divine.

d)God created matter out of everything.

e)God is the allower of freedom. He is a lawgiver, but he is not a tyrant

Q.3 Which of the following is part of St. Augustine’s theory?

i. All creations of God will follow his laws.

ii. God created matter out of nothing.

iii.God impressed forms upon matter to create everything in the universe.

iv. There is nothing that can be constant in this universe even time, space and matter.

a)(i) and (ii)

b)(ii) and (iv)

c)(ii), (iii) and (iv)

d)only (ii)

e)None of the above.

Q.4 Which of the following can be validated true from the passage?

a)Greek philosophers might not have attempted to account for matter while explaining the creation of universe.

b)The universe is the manifestation of interplay between change and imperfection.

c)God is eternal, unchanging and the creator of everything.

d)Both B and C

e)None of the above

Q.5

Which of the following can be a valid conclusion as per passage?

a)God is eternal, unchanging.

b)God created matter and philosophers.

c)God is creator of all forms and ideas.

d)The pattern of the world is himself.

e)God has created everything.

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