Chapter 13 - Monopoly and Antitrust Policy Flashcards
imperfectly competitive industry
An industry in which individual firms have some control over the price of their output.
market power
An imperfectly competitive firm’s ability to raise price without losing all of the quantity demanded for its product.
pure monopoly
An industry with a single firm that produces a product for which there are no close substitutes and in which significant barriers to entry prevent other firms from entering the industry to compete for profits.
barriers to entry
Factors that prevent new firms from entering and competing in imperfectly competitive industries.
natural monopoly
An industry that realizes such large
economies of scale in producing its product that single-firm production of that good or service is most efficient.
patent
A barrier to entry that grants exclusive use of the patented product or process to the inventor.
network externalities
The value of a product to a consumer increases with the number of that product being sold or used in the market.
rent-seeking behavior
Actions taken by households or firms to preserve positive profits.
government failure
Occurs when the government becomes
the tool of the rent seeker and the allocation of resources is made even less efficient by the intervention of government.
public choice theory
An economic theory that the public officials who set economic policies and regulate the players act in their own self-interest, just as firms do.
price discrimination
Charging different prices to different buyers.
perfect price discrimination
Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.
rule of reason
The criterion introduced by the Supreme Court in 1911 to determine whether a particular action was illegal (“unreasonable”) or legal (“reasonable”) within the terms of the Sherman Act.
Clayton Act
Passed by Congress in 1914 to strengthen the Sherman Act and clarify the rule of reason, the act outlawed specific monopolistic behaviors such as tying contracts, price discrimination, and unlimited mergers.
Federal Trade Commission (FTC)
A federal regulatory group created by Congress in 1914 to investigate the structure and behavior of firms engaging in interstate commerce, to determine what constitutes unlawful “unfair” behavior, and to issue cease-and-desist orders to those found in violation of antitrust law.
