Worksheets 4, 5 + Unit 3 Flashcards
Which U.S. agency is responsible for preventing anticompetitive conduct?
DOJ
What criterion developed by the DOJ is used to identify all potential competitors within the market?
SSNIP criterion
What empirical method generally is used to measure the degree to which products substitute for each
other?
Cross-price elasticity
What is defined by the number and size distribution of the firms in a market?
Market Structure
The Herfindahl index solves which problem with the N-Firm ratio?
Invariance with changes in the size of the largest firms
The causal connection between firms is known as the:
Structure, Conduct, Performance paradigm
What term describes the differentiation of a product when it is unambiguously better or worse than
competing products?
Vertical differentiation
What group/type of preferences describes when tastes differ markedly from one person to the next and
result in horizontal differentiation?
Idiosyncratic preferences
What term describes existing firms in a monopolistically competitive market?
incumbents
Based on Bresnahan and Reiss’ study of the relationship between concentration and prices, how many
firms did they determine generally need to be in a market for price competition to be as intense as it
would likely get?
3
In a three firm market where the market share split is 50%, 30% & 20%, what is the Herfindahl
index?
.38
Suppose the demand for a product faces by a monopolist firm is given by Q=60-P/2. If the marginal
cost of producing the product is $20, what is the profit maximizing price the firm should charge for the
product? What are the firm’s profits?
$70; $1250
What type of firm is one that is already operating in a particular market?
Incumbent
Which of the following generally accompanies firms that survive as market entrants?
Precipitous growth
What are the two types of barriers to entry?
Structural and strategic
What type of entry exists if structural entry barriers are low, and either (1) entry-deterring strategies
will be ineffective or (2) the cost to the incumbent of trying to deter entry exceeds the benefits it could
gain from keeping the entrant out?
Accomodated entry
How can incumbents legally erect entry barriers around novel and non-obvious products or production
processes?
Patents
Which of the following is a potential risk of a brand umbrella?
If a new product under the umbrella fails, consumers may become disenchanted with the entire brand
What term describes a market where a monopolist cannot raise price above long run average cost?
Perfectly contestable
Which of the following terms refers to the practice whereby an incumbent firm discourages entry by
charging a low price before entry occurs?
Limit pricing
Which of the following methods is believed to be used by Brazilian cement makers to prevent entry
into the market?
Limit pricing
What term best describes the paradox which says despite the conclusion that predatory pricing to deter
entry appears irrational, many firms are commonly perceived as slashing prices to deter entry?
Chain-store paradox
Which of the following conditions may make predatory pricing by incumbents rational?
When entrants are uncertain about market conditions
Which of the following is not a condition under which an incumbent firm can successfully deter entry
by holding excess capacity?
The excess capacity investment must be recoverable prior to entry
Which term describes the situation where a smaller firm and potential entrant can use the incumbent’s
size to its own advantage?
Judo economics
What term describes a situation where two or more parties expend resources battling each other?
War of attrition
When is reputation a most effective entry barrier?
When a firm has a reputation for toughness or competes in multiple markets
Which of the following best describes an incumbent firm?
One that is already operating in a particular market
What term describes when a firm sells a combination of goods and services together, but not
individually?
Bundling
How can incumbents legally erect entry barriers around novel and non-obvious products or production
processes?
Copyrights
Exclusive franchise agreements
Patents
Which of the following is an exit barrier for firms in an industry?
Sunk costs
Labor agreements or commitments to purchase raw materials
Obligations to input suppliers
Government restrictions
