Chapter 17: Monopoly and AntiTrust Policy Flashcards
Merger
Two formerly separate firms combine to become a single firm
Acquisition
One firm purchases another
How does the US Federal Trade Commission know when a major merger is occurring?
A merger where at least one of the firms is above a minimum threshold of sale, is required by law to notify the FTC
Antitrust Laws
Laws that give the federal government power to block certain mergers and break up large firms
(T/F) Government regulators agree that most mergers are beneficial to consumers.
True.
Why would the FTC (Federal Trade Commission) and US Dept of Justice block a merger?
When they determine it will hinder competition
US FTC
United States Federal Trade Commission
Why is it called “antitrust” laws?
In the late 1800s, large firms were legally consolidated into a “trust” through mergers and purchases, and run by a group of “trustees”. The Sherman Antitrust Act of 1890 was passed to limit their power.
When was the Federal Trade Commission created?
1914
What was the 1914 act that outlawed mergers/acquisitions that substantially lessen competition, price discrimination, and tied sales?
Clayton Antitrust Act of 1914
Concentration Ratio
Measures what share of the total sales in the industry are accounted for by the largest firms (top 4-8)
Market Share
Percentage of total shares in the market
Herfindahl-Hirschman Index (HHI)
Approach to measuring market concentration by adding the square of the market share of each firm in the industry
HHI Equation
Market Concentration = A%^2 + B%^2….
What were the primary technologies of the 2nd Industrial Revolution (3)?
- Steam boats
- Telegraph
- Railroads
What did the arrival of railroads do to the concept of “time” in the US?
Made standardized time necessary. Four time zones created.
First Industrial Revolution
- Mechanization
- Steam engine
- Flying shuttle (loom)
Feedback Loops
When a process causes a change, and that change affects the process itself, causing greater changes
Bundling
Multiple products are sold as one
Exclusive Dealing
(can be legal or illegal)
Agreement a dealer will sell only products from one manufacturer
Minimum Resale Price Maintenance Agreement
(typically illegal)
Agreement that requires a dealer who buys from a manufacturer to sell for at least a certain minimum price
Restrictive Practices
Practices that reduce competition but that do not involve outright agreements between firms to raise prices or reduce quantity produced
Tying Sales
Situation where a customer is allowed to buy one product only if the customer also buys another product
Is it legal for competitor firms to band together to make pricing and output decisions?
No. This is illegal, monopolizing, collusive behavior.
