Monopoly and Antitrust Policy

These flashcards cover key concepts related to monopolies, including types of monopolies, their characteristics, and the role of government regulation.

What is a monopoly?

A market structure where one firm produces all of the output in a market.

What is the fundamental cause of monopolies?

Barriers to entry such as legal, technological, or market forces that discourage competitors from entering a market.

What is a legal monopoly?

A situation where the government grants a single firm the exclusive right to produce a good or service.

Provide an example of a legal monopoly.

Patents and copyrights.

What is a natural monopoly?

A monopoly that occurs when the marginal cost of adding an additional customer is very low.

What are some examples of natural monopolies?

Utilities for water and electricity.

What is the profit-maximizing condition for a monopolist?

Where Marginal Revenue equals Marginal Cost.

How does a monopolist determine the price to charge?

By finding the corresponding price on the demand curve at the profit-maximizing quantity.

What is deadweight loss in the context of monopolies?

The loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

What is the Herfindahl-Hirschman Index (HHI)?

A measure of market concentration calculated by adding the square of the market shares of all firms in the industry.

What is predatory pricing?

A tactic where a firm uses short-term price cuts to drive competitors out of the market.

What was the outcome of the United States v. Microsoft case?

Microsoft was accused of using its monopoly to stifle competition.

What is cost-plus regulation?

A regulatory approach that allows a firm to cover its costs and earn a normal profit.

What is price cap regulation?

A system where regulators set a maximum price that a firm cannot exceed.

What role does the US government play in market competition?

Policing anticompetitive behavior and prohibiting contracts that restrict competition.