Monopoly and Antitrust Policy

Flashcards about Monopoly and Antitrust Policy

What is an imperfectly competitive industry?

An industry in which single firms have some control over the price of their output.

What is market power?

An imperfectly competitive firm’s ability to raise price without losing all of the quantity demanded for its product.

What is a pure monopoly?

An industry with a single firm that produces a product for which there are no close substitutes and in which significant barriers to entry prevent other firms from entering the industry to compete for profits.

What is a barrier to entry?

Something that prevents new firms from entering and competing in imperfectly competitive industries.

What is a government franchise?

A monopoly by virtue of government directive.

What is a patent?

A barrier to entry that grants exclusive use of the patented product or process to the inventor.

What is collusion?

The act of working with other producers in an effort to limit competition and increase joint profits.

What is rent-seeking behavior?

Actions taken by households or firms to preserve positive profits.

What is government failure?

Occurs when the government becomes the tool of the rent seeker and the allocation of resources is made even less efficient by the intervention of government.

What is public choice theory?

An economic theory that the public officials who set economic policies and regulate the players act in their own self-interest, just as firms do.

What is price discrimination?

Charging different prices to different buyers.

What is perfect price discrimination?

Occurs when a firm charges the maximum amount that buyers are willing to pay for each unit.

What is a trust?

An arrangement in which shareholders of independent firms agree to give up their stock in exchange for trust certificates that entitle them to a share of the trust’s common profits. A group of trustees then operates the trust as a monopoly, controlling output and setting price.

What is the Interstate Commerce Commission (ICC)?

A federal regulatory group created by Congress in 1887 to oversee and correct abuses in the railroad industry.

What is the Sherman Act?

Passed by Congress in 1890, the act declared every contract or conspiracy to restrain trade among states or nations illegal and declared any attempt at monopoly, successful or not, a misdemeanor. Interpretation of which specific behaviors were legal fell to the courts.

What is the rule of reason?

The criterion introduced by the Supreme Court in 1911 to determine whether a particular action was illegal (“unreasonable”) or legal (“reasonable”) within the terms of the Sherman Act.

What is the Clayton Act?

Passed by Congress in 1914 to strengthen the Sherman Act and clarify the rule of reason, the act outlawed specific monopolistic behaviors such as tying contracts, price discrimination, and unlimited mergers.

What is the Federal Trade Commission (FTC)?

A federal regulatory group created by Congress in 1914 to investigate the structure and behavior of firms engaging in interstate commerce, to determine what constitutes unlawful “unfair” behavior, and to issue cease-and-desist orders to those found in violation of antitrust law.

What is the per se rule?

A rule enunciated by the courts declaring a particular action or outcome to be a per se (intrinsic) violation of antitrust law, whether the result is reasonable or not.

What is the Antitrust Division?

One of two federal agencies empowered to act against violators of antitrust laws. It initiates action against those who violate antitrust laws and decides which cases to prosecute and against whom to bring criminal charges.

What is the Wheeler-Lea Act?

Extended the language of the Federal Trade Commission Act to include “deceptive” as well as “unfair” methods of competition.

What are consent decrees?

Formal agreements on remedies among all the parties to an antitrust case that must be approved by the courts. Consent decrees can be signed before, during, or after a trial.

What is a natural monopoly?

An industry that realizes such large economies of scale in producing its product that single-firm production of that good or service is most efficient.