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Antitrust Laws
Laws designed to prevent firms from amassing market power
Parallel Conduct
Form of implicit collusion in which a firm consistently follows the action of another
Firm A raises prices then Firm B follows
Predatory Pricing
When an incumbent firm lowers price in order to drive out competition or limit entry into the market by challenger firms
Horizontal Mergers
Merger of two firms that produce the same product. The Department of justice investigates mergers to attempt to predict effects on Market Concentration
Market Concentration
An attempt to measure competition by determining the number and market share of firms in an industry
Herfindahl Index
Obtaining a measure of market concentration. The sum of the squared market percentages of the top 50 firms.
Public Interest Theory of Government
Regulation exists for the benefit of citizens
Rational Ignorance
Occurs when the cost of educating oneself on an issue exceeds the potential benefit that the knowledge would provide
Economic Theory of Government
Legislative and regulatory outcomes that assumes political markets are no different from economic markets in that organized groups seek to further their self-interest
Rent Seeking
When groups call for legislation or regulation that increases their profits or incomes
Acquired Regulation
Regulation that actually benefits the regulated industry
Four Policies Beneficial to a Regulated Industry
Direct Subsidy
Control of entry of new rivals (barriers to entry)
Policies that harm substitutes and help complements
Price fixing
