Chapter 5: Government Regulation for Competition and Prices

Sherman Antitrust Act

A federal statute prohibiting combinations and contracts in restraint of interstate trade and monopolization. (prohibits unfair methods of competition) Ex. prohibits fixing charges and sometimes exchanging price information.

Price Fixing

monopolization and can involve competitors agreeing to not sell below a certain price, agreeing on commission rates, agreeing on credit terms, and exchanging cost information.

Monopolization

Trying to monopolize or take over the market at the expense of competitors.

Market Power

the ability to control price and exclude competitors. When determining whether a firm has engaged in monopolization or attempts to monopolization, the court determine whether a firm has this.

Divestiture Order

A court order to dispose of interests that could lead to a monopoly; the partial of full disposal of a business unit through sale, exchange, or bankruptcy. To prevent monopoly.

Boycotts and Refusals Deal

competitors are not permitted to agree to not deal with certain buyers;

Tying

Occurs when the seller of a product makes the buy purchase an additional, separate product that he or she does not want. Violation under Sherman Act.

Clayton Act

a federal. law that prohibits price discrimination

Price discrimination

A seller charging different prices to different buyers for commodities of similar grade ang quality without marginal cost differences.

valid reasons for price discrimination:

difference in grade, quality, or quantity.

cost of transportation

good-faith effort to meet competition

marginal cost differences

deterioration of good

close-out sale of a particular line of goods.

Robinson-Patman Act

Amendment to Clayton Act, which further prohibits price discrimination (in interstate commerce specifically)

vertical Merger

A merger between two companies at different stages in a production process, clayton act may apply if this would lesson or inhibit competition.

horizontal merger

a merger between two companies at the sam stage in the production process.

federal trade commission

regulate unfair and deceptive trade practices, can issues cease and desist orders

Cease and Desist Order

First step to asking an individual, or a business, to stop an illegal activity. The purpose of the letter is to threaten further legal action if the behavior doesn’t stop