Suppose that there are only three types of fruit sold in the United States. Annu

Question

Suppose that there are only three types of fruit sold in the United States. Annual sales are 1,000,000 tons of blueberries, 5,000,000 tons of strawberries, and 10,000,000 tons of bananas. Suppose that of those total amounts, the Sunny Valley Fruit Company sells 900,000 tons of blueberries, 900,000 tons of strawberries, and 7,900,000 tons of bananas.

Instructions: Round your answers to the nearest whole number.

a. What is Sunny Valley’s market share if the relevant market is blueberries?

      percent.

     If a court applies the “90-60-30 rule” when considering just the blueberry market, would it rule that Sunny Valley is a monopoly?

     (Click to select)LikelyNoYes.

b. What is Sunny Valley’s market share if the relevant market is all types of berries?

      percent.

     Would the court rule Sunny Valley to be a monopolist in that market?

     (Click to select)LikelyNoYes.

c. What if the relevant market is all types of fruit? What is Sunny Valley’s market share?

      percent.

     Would the court consider Sunny Valley to be a monopolist?

     (Click to select)LikelyNoYes.

Explanation / Answer

a) Courts often decide whether or not market power exists by considering the share of the market held by the dominant firm. They have roughly adhered to a '90-60-30 rule' in defining monopoly: If a firm has a 90 percent market share, it is definitely a monopolist; if it has a 60 percent market share, it is probably a monopolist; if it has a 30 percent share, it is clearly not a monopolist. The market share will depend on how the market is defined.
Sunny Valley's market share is 90% if the relevant market is blueberries. Annual sales of blueberries are 1 million tons and Sunny Valley sells 900,000 tons of blueberries in the market ((900,000 / 1,000,000) x 100 = 90%)
Based on the 90-60-30 rule, Sunny Valley would be ruled a monopolist.

b) Sunny Valley's market share is 30% if the relevant market is all berries. Annual sales of blueberries are 1 million tons and annual sales of strawberries are 5 million tons. Sunny Valley sells 900,000 tons of blueberries in the market and sells 900,000 tons of strawberries in the market. ((900,000 blueberries + 900,000 strawberries) / (1,000,000 blueberries market + 5,000,000 strawberries market) x 100 = (1,800,000 berries / 6,000,000 berries market) x 100 = 30%)
Based on the 90-60-30 rule Sunny Valley would not be ruled a monopolist.

c) Sunny Valley's maret share is 61% if the relevant ,arket is all types of fruit. Annual sales of blueberries are 1 million tons, annual sales of strawberries are 5 million tons, and annual sales of bananas are 10 million tons. Sunny Valley sells 900,000 tons of blueberries in the market , sells 900,000 tons of strawberries in the market, and sells 7.9 million tons of bananas. ((900,000 blueberries + 900,000 strawberries + 7,900,000 bananas) / (1,000,000 blueberries market + 5,000,000 strawberries market + 10,000,000 bananas market) x 100 = (9,700,000 fruit / 16,000,000 fruit market) x 100 = 60.63% or 61%)
Based on the 90-60-30 rule Sunny Valley would likely be ruled a monopolist.

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