Chapter 13 Key Terms Flashcards
economies of scale
savings that are obtained through increases in quantities produced. When X percent increase in input use raise output by more than X percent, so that the more the firm produces, the lower its per-unit costs become
monopoly power
the ability of a business firm to earn high profits by raising the prices of its products above competitive levels and to keep those prices high for a substantial amount of time (aka market power)
antitrust policy
programs and laws that preclude the deliberate creation of monopoly and prevent powerful firms from engaging in related “anticompetitive practices.”
concentration of an industry
measurement of the share of the total sales or assets of an industry in the hands of its largest firms
concentration ratios
the percentage of an industry’s output produced by its four largest firms. Intended to measure the degree to which the industry is dominated by large firms.
Herfindahl-Hirschman Index
an alternative and widely used measure of the degree of concentration on an industry. Calculated, in essence, by adding together the squares of the market shares of the firms in the the industry, although the smallest firms may be left out of the calculation because their small market share numbers have a negligible effect on the result.
predatory pricing
pricing that threatens to keep a competitor out of the market; a price so low that it will be profitable for the firm that adopts it only if a rival is driven from the market
bundling
a pricing arrangement under which the supplier offers substantial discounts to customers if they buy several of the firm’s products, so that the price of the bundle of products is less than the sum of the prices of the products if they were bought separately
regulation
a process established by law that restricts or control some specified decisions made by the affected firms; designed to protect the public from exploitation by firms with monopoly power; usually carried out by a special government agency assigned the task of administering and interpreting the law, and that also acts as a court in enforcing the regulatory laws
economies of scope
savings that are obtained through simultaneous production of many different products; occurs if a firm that produces many commodities can supply each good more cheaply than a firm that produces fewer commodities.
cross-subsidization
selling one product of the firm at a loss, which is balanced by higher profits on another of the firm’s products
a price cap
a ceiling above which regulators do not permit prices to rise; designed to provide an efficiency incentive to the firm by allowing it to keep part of any savings in costs it can achieve
