Chapter 11 Flashcards
What is competition good for?
Lower prices and innovative products
What are the laws that give government power to block mergers?
Antitrust laws
What is the fundamental belief behind a market-oriented economy?
Firms know best about actions
What does HHI give greater weight to?
Large firms
How have communications technologies impacted local retail businesses?
Increased competition
What do the FTC and DOJ prohibit?
Price fixing, bid rigging, market sharing
Can bundling be anticompetitive?
Yes
What can companies who are losing in the market do to combat successful companies?
Accuse of anticompetitive practices.
Why is it difficult to limit government intervention in markets?
Once given authority, it’s hard to establish boundaries.
What is a consequence of regulatory capture?
Higher prices, less competition
What is a common condition for allowing a merger?
Selling off certain parts
What is the challenge for antitrust regulators?
Determining merger impact on competition
What happens to the four-firm concentration ratio if two smallest firms merge?
No change
What HHI indicates FTC approval for a merger?
Less than 1,000
What is predatory pricing?
Drop prices to eliminate competition
What are examples of regulated monopolies in the U.S.?
Natural monopolies.
What freedom do private firms have?
Make own choices
What is U.S. antitrust law?
Protects against monopolies
What is the four-firm concentration ratio if the top two firms merge?
46
What is tying sales?
Buying one product requires buying another
Who filed the lawsuits against Microsoft??
U.S. government
Why is competition unlikely in a natural monopoly?
Cost structure issues
What is the role of government in natural monopolies?
Regulation of price/output
Can firms set their own prices?
Yes
When did U.S. antitrust law originate?
Closing decades of the 1800s
Why are tying sales considered problematic?
Forces unwanted product purchase.
What were the allegations against Microsoft??
Anticompetitive and restrictive practices
What happens when fixed costs are large relative to variable costs?
Natural monopoly occurs
What triggered the Great Recession?
Global financial crisis
What is it called when one firm purchases another?
Acquisition
Do firms have the freedom to hire or lay off workers?
Yes
What happens when competition is reduced for firms?
Charge more, higher profits
How is HHI calculated?
Sum of squares of market shares
What was the form of anticompetitive behavior Microsoft was accused of?
Exclusive dealing
What should a natural monopoly charge?
Average costs and normal profit
Can firms open or close facilities?
Yes
What was Microsoft accused of tying together?
Windows OS and Internet Explorer
Why is having multiple competing electricity companies costly?
Each company would need its own set of wires
What is cost-plus regulation?
Reimbursement for costs plus extra.
Are firms allowed to change production levels?
Yes
What did the federal court decide about Microsoft’s behavior in April 2000?
Unfair competition
Why was the idea of multiple phone companies costly before wireless phones?
Each company would need its own set of phone wires
What happens to average costs when two smaller firms operate vs. one larger firm?
Smaller firms have higher costs
What was a common pattern in price cap regulation?
Price declines over time
What can large-scale production do?
Lower average costs
Can firms start or stop selling products?
Yes
What was created in 1914 to define unfair competition?
Federal Trade Commission
What did Microsoft agree to do in the November 2002 settlement?
End restrictive practices
What happens if a firm cannot keep up with price caps?
It may suffer losses
