Chapter 11

Question 1

What is competition good for?

Answer 1

Lower prices and innovative products

Question 2

What are the laws that give government power to block mergers?

Answer 2

Antitrust laws

Question 3

What is the fundamental belief behind a market-oriented economy?

Answer 3

Firms know best about actions

Question 4

What does HHI give greater weight to?

Answer 4

Large firms

Question 5

How have communications technologies impacted local retail businesses?

Answer 5

Increased competition

Question 6

What do the FTC and DOJ prohibit?

Answer 6

Price fixing, bid rigging, market sharing

Question 7

Can bundling be anticompetitive?

Answer 7

Yes

Question 8

What can companies who are losing in the market do to combat successful companies?

Answer 8

Accuse of anticompetitive practices.

Question 9

Why is it difficult to limit government intervention in markets?

Answer 9

Once given authority, it’s hard to establish boundaries.

Question 10

What is a consequence of regulatory capture?

Answer 10

Higher prices, less competition

Question 11

What is a common condition for allowing a merger?

Answer 11

Selling off certain parts

Question 12

What is the challenge for antitrust regulators?

Answer 12

Determining merger impact on competition

Question 13

What happens to the four-firm concentration ratio if two smallest firms merge?

Answer 13

No change

Question 14

What HHI indicates FTC approval for a merger?

Answer 14

Less than 1,000

Question 15

What is predatory pricing?

Answer 15

Drop prices to eliminate competition

Question 16

What are examples of regulated monopolies in the U.S.?

Answer 16

Natural monopolies.

Question 17

What freedom do private firms have?

Answer 17

Make own choices

Question 18

What is U.S. antitrust law?

Answer 18

Protects against monopolies

Question 19

What is the four-firm concentration ratio if the top two firms merge?

Answer 19

46

Question 20

What is tying sales?

Answer 20

Buying one product requires buying another

Question 21

Who filed the lawsuits against Microsoft??

Answer 21

U.S. government

Question 22

Why is competition unlikely in a natural monopoly?

Answer 22

Cost structure issues

Question 23

What is the role of government in natural monopolies?

Answer 23

Regulation of price/output

Question 24

Can firms set their own prices?

Answer 24

Yes

Question 25

When did U.S. antitrust law originate?

Answer 25

Closing decades of the 1800s

Question 26

Why are tying sales considered problematic?

Answer 26

Forces unwanted product purchase.

Question 27

What were the allegations against Microsoft??

Answer 27

Anticompetitive and restrictive practices

Question 28

What happens when fixed costs are large relative to variable costs?

Answer 28

Natural monopoly occurs

Question 29

What triggered the Great Recession?

Answer 29

Global financial crisis

Question 30

What is it called when one firm purchases another?

Answer 30

Acquisition

Question 31

Do firms have the freedom to hire or lay off workers?

Answer 31

Yes

Question 32

What happens when competition is reduced for firms?

Answer 32

Charge more, higher profits

Question 33

How is HHI calculated?

Answer 33

Sum of squares of market shares

Question 34

What was the form of anticompetitive behavior Microsoft was accused of?

Answer 34

Exclusive dealing

Question 35

What should a natural monopoly charge?

Answer 35

Average costs and normal profit

Question 36

Can firms open or close facilities?

Answer 36

Yes

Question 37

What was Microsoft accused of tying together?

Answer 37

Windows OS and Internet Explorer

Question 38

Why is having multiple competing electricity companies costly?

Answer 38

Each company would need its own set of wires

Question 39

What is cost-plus regulation?

Answer 39

Reimbursement for costs plus extra.

Question 40

Are firms allowed to change production levels?

Answer 40

Yes

Question 41

What did the federal court decide about Microsoft's behavior in April 2000?

Answer 41

Unfair competition

Question 42

Why was the idea of multiple phone companies costly before wireless phones?

Answer 42

Each company would need its own set of phone wires

Question 43

What happens to average costs when two smaller firms operate vs. one larger firm?

Answer 43

Smaller firms have higher costs

Question 44

What was a common pattern in price cap regulation?

Answer 44

Price declines over time

Question 45

What can large-scale production do?

Answer 45

Lower average costs

Question 46

Can firms start or stop selling products?

Answer 46

Yes

Question 47

What was created in 1914 to define unfair competition?

Answer 47

Federal Trade Commission

Question 48

What did Microsoft agree to do in the November 2002 settlement?

Answer 48

End restrictive practices

Question 49

What happens if a firm cannot keep up with price caps?

Answer 49

It may suffer losses