MicroEconomics Chapters 10-13

sherman Antitrust act

1890, limits cartels and monopolies

The negative effects of Advertising

Cost and the possibility that the money you spend on advertising won't make you any more money

Conditions for price discrimination

Distinguishing Groups or buyers preventing resell

Problems with Monopolies

Inefficient Output and Price Few choices for customers Rent Seeking

example of perfect price discrimination

Jewelry store car dealership

Government created barriers

Licensing patents and copyrights

Name an example of preventing resale

Movie tickets are only good for a certain amount of time

tariffs, quotas, prohibitions limit gains from trade. reducing these allows for what solution to the problems of monopolies?

Reducing trade barriers

distinguishing buyers means you have to pick out who have different elasticities of demand (True/False)

True

When monopolies sell less of a product for more money they are making sure that their marginal revenue is maximized. (True/ False)

True. The less they sell for a higher price, the higher their marginal revenue

Price Discrimination on Campus

Tuition (FAFSA) Student Discounts (food places around campus)

mutual interdependence

actions of one firm ave an impact on the price and output of its competitors

collusion

agreement among rival firms that specifies the price firm shares and the quantity it produces (illegal)

Game Theory

analyze other companies decisions to know how to base yours to make the most money possible

antitrust law

attempt to p recent oligopolies from behaving like monopolies

Advertising and game theory (pepsi and coke)

both advertise= profit for both pepsi ad. coke doesn't= pepsi makes more $ coke ad. pepsi doesn't = coke makes more $ both don't advertise =MAKE THE MOST $

example of tit for tat

break a contract if your opponent does

New competition in the phone market is an example of what solution to the problems of monopolies?

breaking up the monopoly

Natural barriers to entry

control of resources problems in raising capital economies of scale

The best way to limit competition is to __________ that is essential to the production process of a good

control resources

location

convenient location, close to your house instead of how expensive they are

Switching cost

costs incurred when a consumer changes from one supplier to another ( switching from sprint to AT&T, sprint charges you $300 to end your contract)

Prisoner's dilemma

decision makers face incentives that make it difficult to achieve mutually beneficial outcomes (incentive to not go to jail if you rat someone out)

style

different stores in the mall

Why do firms advertise ?

drive additional demand for the product being sold

Monopolistic competition

free entry many different firms product differentiation

inefficiency of the monopoly versus the inefficiencies associated with government involvement. this is an example of what solution?

government oversight

cartel

group of two or more firms that act in unison

Economies of scale (natural barrier to entry)

in an industry that enjoys large economies of scale, production costs opera unit continue to fall as the firm expands. small rivals will have a much higher average cost that prevent them from competing with the large companies.

Trash companies are licensed to a certain area, anyone who tries to start a trash company in that area can not without a government issued license. this is an example of what type of barrier?

licensing

tit for tat

long run strategy that promotes cooperation among participants by mimicking the opponent's most recent decisions with repayment in kind (do whatever the opponent does)

Monopoly Power

measures the ability of firms to set the price for a good

examples of price discrimination

movie theater tickets restaurant menues college tuition airline reservations discounts on academic software coupons

Rent Seeking

occurs when resources are used to secure monopoly rights through the political process

Market Failure

occurs when the output level of a good is inefficient

When a pharmaceutical company develops a new drug, the company receives a patent. Granting patents and copyrights to them to create incentives to make more drugs. this is an example of what ?

patents and copyright laws

Price discrimination at the movies examples

price based on the showtime pricing based on age or status (get discount for being old or in college) concession pricing (expensive b/c you can't get food anywhere else)

to practice price discrimination a firm must be a what?

price maker

Monopolies are what? (control the price change of their product)

price makers

Price effect

price of a good/service is affected by the entrance of a rival firm in the market

Monopolies are usually big companies that took a a lot of money to start up. This is an example of what natural barrier to entry?

problems raising capital

product differentiation

process firms use to make product more attractive to potential customers

Barriers to entry

restrictions that make it difficult for a new firm to enter a market

Nash Equilibrium

second best outcome, occurs when an economic decision maker has nothing to gain by changing strategy unless it can collude

Oligopoly

small number of firms interact strategically barriers to entry differentiated products

Product differentiation

style or type location quality

quality

taco bell vs. baja fresh

clayton act

targets corporate behaviors that reduce competition

Bandwagon effect

when a buyer's preference for a product increases as the number of people buying it increases

Perfect price discrimination

when a firm sells the same good at a unique price to every customer

Price discrimination

when a firm sells the same good at different prices to different groups of customers

Natural Monopoly

when a single large firm has lower costs than any other smaller competitor.

Predatory Pricing

when firms deliberately set their prices below average variable costs with the intent of driving rivals from the market

dominant strategy

when one player chooses one strategy no matter what his competition chooses

output effect

when the entrance of a rival affects the amount produced

Network externalities

when the number of customers who purchase or use a good influences the quantity demanded (Facebook)

Solutions to the problems of monopolies

~ Breaking up the monopoly ~ Reducing trade barriers ~ Regulating markets Caveat about governmental oversight