Ch 15 Flashcards
Monopoly
an industry structure in which:
-there is one firm
-produces a product for which there are no close substitutes
-very high barriers to entry
monopoly has control over price and quantity; has the most market power
still subject to the demand curve
Standard Oil John D. Rockefeller
- classic example of a monopoly
- bought all smaller firms
- lowered ATC by making transportation cheaper
- bought barrels and chemicals
- created trusts to control firms across state borders
- restricted quantity and charged a higher price
Welfare cost of monopolies
monopolies restrict quantity and charge a higher price; has consumer surplus and deadweight loss (in perfect competition total surplus is maximized; no deadweight loss and P=MC and P=min ATC)
Antitrust Law
a collection of federal and state government laws that regulates the conduct and organization of business corporations, generally to promote fair competition for the benefit of consumers
-Sherman Act of 1890, Clayton Act of 1914, and Federal Trade Commission (FTC) of 1914
Sherman Act of 1890
prohibited a “restraint of trade” which included price fixing and collusion; specifically outlawed monopolization
Clayton Act of 1914
prohibited firms from buying stock in companies that they competed with; prohibited directors from serving on boards of competing firms
Federal Trade Commission (FTC) of 1914
created to administer Antitrust laws
Price Discrimination
business practice of selling one good at different prices to different consumers; a firm must have market power to price discriminate; ie: insurance, mortgage, college education, movies (age); different prices better for consumers so everyone is able to buy and profit is higher for monopolist
Natural Monopolist
monopoly that arises because a single firm can produce a product at a lower average cost than could 2 or more other firms; tend to arise due to economies of scale; governments allow them; ie: utility companies; ATC doesnt get low until you produce at a very high quantity
