Part IV: Public Policy Competition Policy (1/1) SLIDESHOW 10 Flashcards
What does the Schumpeterian hypothesis suggest about market power and monopoly status?
It may be interpreted as a reward for successful past innovation
With what does competition policy deal?
1\ Monopoly
2\ Restrictive practices
3\ Merger
According to the SCP paradigm, what is perfect competition?
It is the market structure with the most favourable efficiency and welfare properties
What happens for both monopolist and perfectly competitive firms in the long-run equilibrium regarding a LRAC U or L shaped?
Monopolist fails to produce at the minimum efficient scale but in competition, they do.
Monopolist earns an abnormal profit in the long run
What are the main differences between monopolist and firms in competition?
1\ Price is higher, output is lower
2\ allocative inefficiency because price exceeds marginal cost
3\ Productive inefficiency –> fail to make the most efficient use of its factor inputs and fail to employ the most cost-effective combination of inputs
Does monopoly lead to reduction in efficiency and social welfare?
Theoretical evidence is inconclusive
What is a natural monopoly?
A market in which LRAC is decreasing as output increases –> water, gas, electricity
How can an incumbent monopolist raise entry barriers and deter potential entrants?
1\ Limit pricing
2\ Predatory pricing
3\ Product differentiation
4\ Brand proliferation
What are the principal forms of vertical restraint?
1\ Retail price maintenance foreclosure
2\ Territorial exclusivity
3\ Quantity-dependent pricing (explorer and microsoft)
What does competition policy seek?
1\ Increase efficiency
2\ Promote innovation
3\ Improve consumer choice
What types of firms are involved in horizontal agreements?
Same industry –> reduce competition
What types of firms are involved in vertical agreements?
Successive stages of production or distribution
