Microeconomics: Monopoly Power, Regulation, and Antitrust Laws

Vocabulary flashcards covering the social costs of monopoly power, price and rate-of-return regulation, U.S. and European antitrust laws, and contemporary competition issues in Big Tech.

Deadweight Loss from Monopoly Power

The net loss of total surplus (consumer plus producer) resulting from a monopolist reducing output and raising price above marginal cost, represented by the area $B + C$.

Rent Seeking

Spending money in socially unproductive efforts to acquire, maintain, or exercise monopoly.

Natural Monopoly

A firm that can produce the entire output of the market at a cost lower than what it would be if there were several firms, characterized by economies of scale (declining average and marginal costs) over its entire output range.

Rate-of-Return Regulation

A regulatory practice where the maximum price allowed by a regulatory agency is based on the (expected) rate of return that a firm will earn on its capital.

Regulatory Lag

A term associated with delays in changing regulated prices.

Price Cap Regulation

A regulatory approach that sets price limits based on a firm's variable costs, allowing flexibility such as annual price increases equal to the actual rate of inflation minus expected productivity growth.

Antitrust Laws

Rules and regulations prohibiting actions that restrain, or are likely to restrain, competition.

Parallel Conduct

A form of implicit collusion in which one firm consistently follows the actions of another.

Predatory Pricing

The practice of pricing to drive current competitors out of business and to discourage new entrants in a market so that a firm can enjoy higher future profits.

Section 1 of the Sherman Act

A U.S. antitrust provision that prohibits contracts, combinations, or conspiracies in restraint of trade; a violation requires that parties actually agree to collude rather than merely propose it.

Section 2 of the Sherman Act

A U.S. antitrust provision that prohibits monopolization, attempted monopolization, or conspiracies to monopolize and abuse market power.

Section 7 of the Clayton Act

A U.S. antitrust law that prohibits mergers and acquisitions that substantially lessen competition.

Article 101 of the Treaty of the European Community

A European Union antitrust law similar to Section 1 of the Sherman Act that prohibits agreements and concerted practices that restrain trade.

Article 102 of the Treaty of the European Community

A European Union antitrust provision similar to Section 2 of the Sherman Act that focuses on prohibiting abuses of market power by dominant firms.

European Merger Control Act

European Union regulation similar in spirit to Section 7 of the Clayton Act that prohibits mergers that lessen competition.

Mega-mergers

Corporate mergers valued at more than $\\text{\$500 million}$.

Network Effects

A characteristic of digital platforms where an increasing number of users adds value to the service, making it difficult for rival platforms to compete.

Switching Costs and Data Lock-in

Frictions and barriers faced by users and advertisers when attempting to change from one digital platform to another.

Self-preferencing

A practice where an online marketplace operator (such as Amazon) controls access to its marketplace while also competing directly with third-party sellers and favoring its own products and services.