Antitrust policy

Question 1

What is antitrust policy about?

Answer 1

investigate whether the firm was in a position to exert market power.
- is it merely temporary?
firm attempted
to exploit its new-won pricing power, the profit margins it earned would rise, this would lure new competitors into the market. On this view, most monopolies would be eroded more quickly and more effectively by market forces than by government
action.

Question 2

what does it mean when a market is contestable?

Answer 2

market entry is easy and costless
monopolist will tend to forestall competition by setting prices as if it were operating in a competitive market

Question 3

can a market be contestable?

Answer 3

NO, firms can´t avoid sunk costs; can´t withdraw from a market again without writing off large investments
- the higher the sunk costs are, the smaller the incentive will be for new firms to compete against an incumbent

Question 4

what is predatory pricing?

Answer 4

predatory pricing occurs when one firm charges unrealistically
low prices to drive a competitor out of the market

Question 5

name an illegal business practice

Answer 5

tying: requiring the purchaser of one product to buy
another