Chapter 8: MONOPOLY + MARKET POWER Flashcards
A situation in which multiple products are sold as one
bundling
A situation where a customer is allowed to buy one product only if the customer also buys another product
tying sales
An agreement that a dealer will sell only products from one manufacturer
exclusive dealing
An early tool to measure the degree of monopoly power in an industry; measures what share of the total sales in the industry are accounted for by the largest firms, typically the top four to eight firms
concentration ratio
Approach to measuring market concentration by adding the square of the market share of each firm in the industry
Hirfendahl-Hirschman Index (HHI)
Laws that give government the power to block certain mergers, and even in some cases to break up large firms into smaller ones
antitrust laws
Practices that reduce competition but that do not involve outright agreements between firms to raise prices or to reduce the quantity produced
restrictive practices
The percentage of the total sales in the industry that are accounted for by the largest four firms
four-firm concentration ratio
The percentage of total sales in the market
market share
When one firm purchases another
acquisition
When regulators permit a regulated firm to cover its costs and to make a normal level of profit
cost-plus regulation
When the regulator sets a price that a firm cannot exceed over the next few years
price-cap regulation
When the supposedly regulated firms end up playing a large role in setting the regulations that they will follow and as a result, they “capture” the people usually through the promise of a job in that “regulated” industry once their term in government has ended
regulatory recapture
When two formerly separate firms combine to become a single firm
merger
A standard in antitrust law that evaluates business practices by the outcome for consumers
consumer welfare standard
Costs of complying with regulations (e.g., financial regulation costs for banks)
regulatory costs
Defines a market—if a single firm could raise the price in an area by 5% that area, for that product, is considered a market
hypothetical monopolist test
Maximizing the difference between total revenue and total cost.
profit maximization
Producing the optimal quantity of some output; the quantity where the marginal benefit to society of one more unit just equals the marginal cost
allocative efficiency
Profit of one more unit of output, computed as marginal revenue minus marginal cost; the difference between marginal revenue and marginal cost.
marginal profit
The gap between price and marginal cost
markup
When a monopolist acquires a small competitor to take them out of the market
killer acquisition
When a monopolist segments markets by demand and charges different prices to different markets.
price discrimination
A form of legal protection to prevent copying, for commercial purposes, original works of authorship, including books and music
copyright
A government rule that gives the inventor the exclusive legal right to make, use, or sell the invention for a limited time
patent
An identifying symbol or name for a particular good and can only be used by the firm that registered that trademark
trademark
Economic conditions in the industry, for example, economies of scale or control of a critical resource, that limit effective competition
natural monopoly
Legal prohibitions against competition, such as regulated monopolies and intellectual property protection
legal monopoly
Methods of production kept secret by the producing firm
trade secrets
Removing government controls over setting prices and quantities in certain industries
deregulation
The ability of a firm to profitably manipulate the price of an item in the marketplace by manipulating the level of supply, demand, or both
market power
The body of law including patents, trademarks, copyrights, and trade secret law that protect the right of inventors to produce and sell their inventions
intellectual property
The legal, technological, or market forces that may discourage or prevent potential competitors from entering a market
barriers to entry
When an existing firm uses sharp but temporary price cuts to discourage new competition
predatory pricing
