Ch 4: Competition Law Flashcards
What is the goal of promoting competition? What does competition law refer to?
refers to law and regulation designed to ensure an adequate degree of competition among business entities operating in an economy. compeition is considered a good thing as it encourages companies to make the lowest prices with the least possible resources, goal of this is to promote competition at market level. Way of achieving this varies from one national legal system to the other. Example all members of the eu have to abide within its regulation this means that nations in EU have both national and international legislation
What are the issues addressed by compeition law?
these are types of behaviours that compeition law inhibits: monopolies, market allocation, price fixing, resale price maintenance, group boycotts, tying arrangements, mergers.
What are monopolies?
defined as a business entity that deliberately engages in conduct to obtain or maintain power to control prices or exclude compeition in some part of trade or commerce. A business entity thats the only one operating in a particular market is a monopoly. Eg of this ( company a is the only one producing plant building, located in Detroit Michigan, another company in Canada produces plant stuff just not plant building, another one in the very far side of the US produces it but the shipping prices to Canada are too high => company A has monopoly in Canada for plant building but not in the US cz theres also the other one).
What is a competitive system vs a monopoly?
in contrast to a monopoly, a compeitive system would have various business entities each producing the same goods or providing the same services with none of the individual business entities possessing the power to control overall prices and output.
What are natural monopolies are they prohibited?
in these types of businesses monopolies are not prohibited. Eg utility companies, or in cases where control over some type of property or operation serves other imp purposes. Eg copyrights and patent rights allow people to have monopoly over a certain something that they created for a certain amount of time, therefore encouraging creativity.
What is horizontal market division is it prohibited?
this is an agreement between companies such as each company would only sell products in a particular specified territory, this is often prohibited in places such as EU.
What are vertical agreements are they prohibited?
also prohibited in the EU, agreements under which a producer grants a distributor the exclusive right to distribute its product solely in a certain nation region or territory.
What is price fixing is it prohibited?
agreement among several business entities under which they all agree not to change less than a specific price for a particular product, this is often prohibited.
What is resale price maintenance is it prohibited?
agreement representing a special type of price fixing,in which a single manufacturer and a retail seller agree to set either a max or min price at which smthn is sold, it prevents competition. For eg if a TV manufacturer sets a price at which tv is to be sold at no more than than then it would lead to very little competition at retail level.
What is group boycott is it prohibited?
this happens if a business entity collaborates with another to refuse the deal of a 3rd on, some competition laws prohibit this, for example if a company a tries to boycott company y by telling its customers that if they buy from y they would stop selling to them.
What is tying arrangement is it prohibited?
in which a seller asks the buyer to purchase certain goods from the seller in addition to those the buyer really wants, in some places this is illegal.
What are mergers is it prohibited?
are usually allowed by law, its a way of creating and organising a new business entity that involves a union of 2 or more separate business entities, the reason why a merger is forbade by competition law is that it can reduce competition even creating a monopoly when 2 or more entities become
What is a horizontal merger?
involves a merger between 2 companies that formally competed with each other in regards to same product or in same geographical market. for eg if company a with the plants referred to above purchase all the other manufacturers of plant building in USA it would be horizontal merger.
What is a vertical merger?
involved a combination between a customer or several customers and supplier, for eg if company a with the plants referred to above purchased all the retailers for plant building and the plants involved in building this it would be vertical merger.
