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Ag Econ

Chapter 11: Monopoly & Antitrust Policy

Term/QuestionDefinition/Answer
Merger when 2 formerly separate firms combine to become single firm
Acquisition when 1 firm purchases another
Antitrust Laws laws give government power to block certain mergers and break up large firms into smaller ones
Concentration Ratio earlier tool which measures what share total sales in industry accounted for by largest firms; top 4-8 firm typical
Market Share each firms proportion of total sales in that market
Herfindahl-Hershman Index (HHI) approach to measuring market concentration by adding square of market share of each firm in industry
What are the steps to HHI? 1. Find each company's market share percentage; 2. Square each number; 3. Add all up
Under 1,500 HHI = not very concentrated
1,500 - 2,500 = moderately concentrated
Over 2,500 = Highly concentrated
Antitrust Law Monopoly is technically legal, but there are some rules against restrictive practices
Restrictive Practices practices don't involve outright agreements to raise prices/reduce quantity produced, might have effect of reduced competition
Minimum Resale Price Maintenance Agreement requires dealer who buys from manufacturer to sell for certain minimum price
Tying Sales situation where custom is allowed to buy one product only if customer also buys another product; Apple Charging ports
Exclusive Dealing agreement that dealer will sell only products from one manufacturer
Bundling situation which multiple products sold as one
Natural Monopoly when average costs declining over range of production that satisfies market demand; find costs large in relation to variable costs
Cost-Plus Regulation when regulators permit regulated firm to cover costs and make normal level of profit
Price Cap Regulation When regulator sets price that firm cannot exceed over next few years
Deregulation removing government controls over prices and quantities; good, but can be bad; The Little Man by Alan Jackson
Regulatory Capture when supposedly regulated firm play large role in setting regulations they will follow, resulting in "captured" ppl w/ promise of job in "regulated" industry when gov. term ends
Created by: horktera
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