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Econ 201 Microeconomics > Chapter 17: Monopoly and AntiTrust Policy > Flashcards

Chapter 17: Monopoly and AntiTrust Policy Flashcards

1
Q

Merger

A

Two formerly separate firms combine to become a single firm

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2
Q

Acquisition

A

One firm purchases another

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3
Q

How does the US Federal Trade Commission know when a major merger is occurring?

A

A merger where at least one of the firms is above a minimum threshold of sale, is required by law to notify the FTC

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4
Q

Antitrust Laws

A

Laws that give the federal government power to block certain mergers and break up large firms

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5
Q

(T/F) Government regulators agree that most mergers are beneficial to consumers.

A

True.

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6
Q

Why would the FTC (Federal Trade Commission) and US Dept of Justice block a merger?

A

When they determine it will hinder competition

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7
Q

US FTC

A

United States Federal Trade Commission

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8
Q

Why is it called “antitrust” laws?

A

In the late 1800s, large firms were legally consolidated into a “trust” through mergers and purchases, and run by a group of “trustees”. The Sherman Antitrust Act of 1890 was passed to limit their power.

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9
Q

When was the Federal Trade Commission created?

A

1914

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10
Q

What was the 1914 act that outlawed mergers/acquisitions that substantially lessen competition, price discrimination, and tied sales?

A

Clayton Antitrust Act of 1914

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11
Q

Concentration Ratio

A

Measures what share of the total sales in the industry are accounted for by the largest firms (top 4-8)

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12
Q

Market Share

A

Percentage of total shares in the market

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13
Q

Herfindahl-Hirschman Index (HHI)

A

Approach to measuring market concentration by adding the square of the market share of each firm in the industry

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14
Q

HHI Equation

A

Market Concentration = A%^2 + B%^2….

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15
Q

What were the primary technologies of the 2nd Industrial Revolution (3)?

A
  1. Steam boats
  2. Telegraph
  3. Railroads
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16
Q

What did the arrival of railroads do to the concept of “time” in the US?

A

Made standardized time necessary. Four time zones created.

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17
Q

First Industrial Revolution

A
  1. Mechanization
  2. Steam engine
  3. Flying shuttle (loom)
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18
Q

Feedback Loops

A

When a process causes a change, and that change affects the process itself, causing greater changes

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19
Q

Bundling

A

Multiple products are sold as one

20
Q

Exclusive Dealing

A

(can be legal or illegal)

Agreement a dealer will sell only products from one manufacturer

21
Q

Minimum Resale Price Maintenance Agreement

A

(typically illegal)

Agreement that requires a dealer who buys from a manufacturer to sell for at least a certain minimum price

22
Q

Restrictive Practices

A

Practices that reduce competition but that do not involve outright agreements between firms to raise prices or reduce quantity produced

23
Q

Tying Sales

A

Situation where a customer is allowed to buy one product only if the customer also buys another product

24
Q

Is it legal for competitor firms to band together to make pricing and output decisions?

A

No. This is illegal, monopolizing, collusive behavior.

25
Q

Is being a monopoly illegal, under US antitrust laws?

A

No

26
Q

What is a common example of an industry that employs “bundling” of products?

A

Cable and internet companies

27
Q

What was Microsoft accused of by antitrust regulators?

A
  1. Using its market power in operating systems to take over other parts of the software industry
  2. Anticompetitive form of exclusive dealing by not selling computer makers its operating system if they used Netscape internet browser
  3. Anticompetitive form of tying sales by bundling its Internet Explorer with its software
  4. Predatory pricing by giving away certain Windows software products to drive away competition
28
Q

What was the result of the antitrust lawsuit against Microsoft?

A

Settlement reached for Microsoft to end its restrictive practices, instead of being broken into two competing firms

29
Q

Cost-Plus Regulation

A

When regulators permit a regulated firm to cover its costs and to make a normal level of profit

30
Q

Price Cap Regulation

A

When the regulator sets a price that a firm cannot exceed over the next few years

31
Q

If regulators leave a monopoly alone, at what quantity (on a graph) will a firm produce?

A

Where MC = MR
Marginal Costs = Marginal Revenues
Price will be on the demand curve

32
Q

What are options that regulators may employ when regulating a monopoly?

A
  1. Divide the company into competing firms

2. Set prices and quantities

33
Q

Regulatory Capture

A

Firms supposedly being regulated end up playing a large role in setting the regulations they will follow

34
Q

What Act (2002) was designed to increase confidence in financial information provided by public corporations to protect investors from accounting fraud?

A

Sarbanes-Oxley Act of 2002

35
Q

What Act following the 2007-2009 financial crisis attempted major reforms of the financial system?

A

The Dodd-Frank Act

36
Q

Cornelius Vanderbilt’s empire was built on

A

transportation, especially railroads

37
Q

John D Rockefeller’s empire was built on

A

monopolies, especially Standard Oil

later broken up by the government

38
Q

Andrew Carnegie’s empire was built on

A

Steel

39
Q

Social Darwinism

A

Theory of “survival of the fittest” should be applied to people, and also that corporations were people
(big companies were big because they were the best, and governments should not regulate them)

40
Q

Horizontal Mergers

A

Businesses buying out or otherwise combining with competitors that made the same product

41
Q

Vertical Mergers

A

Businesses buying up their suppliers and distributors

42
Q

Conglomerate Mergers

A

Businesses buying up unrelated product lines

43
Q

Planned Obsolescence

A

Designing a product to have a limited useful life in order to encourage future sales

44
Q

First Mover Advantage

A

The competitive edge a business gets from being the first to adopt a new technology that will become the standard

45
Q

Economies of Speed/Throughput

A

Realizing lower costs by maintaining a high speed and volume of flow from raw materials to finished goods

46
Q

Rule of Reason

A

Rule developed by Supreme Court to make the Sherman Act workable in an era in which businesses were organization and technologically compelled to restrain trade

Econ 201 Microeconomics (17 decks)

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