Microeconomics
Occupational licensing is a labor market application of...
Legal Cartel Theory
'per se violations' are...
"in and of themselves" illegal
'rule of reason' interprets as....
"not every monopoly is illegal"
Overt means...
"open to view"
What phrase is commonly associated with price-fixing?
"per se violations"
What does Covert mean?
"secret"
In the case against US Steel, the courts established what rule?
'rule of reason'
What are some obstacles for a Cartel?
-Difficulty to agree upon a price -Different market shares & productive efficiency -Different demand & cost curves
What are some negative aspects of Advertising?
-Firms can manipulate their product -Ads can be misleading - Entice consumers to spend more
What are some positive examples of Advertising?
-Low Cost -By providing info about goods, it downsizes monopoly power
Forms of cheating used within a Cartel...
-price wars -price concessions that threaten collusive oligopolies over the course of time
In pure monopoly, the Herfindahl Index for that single firm is...
10,000 (100^2)
an industry with 4 items and a 25% market share has a Herfindahl Index of...
2,500 (25^2+25^2+25^2=25^2)
How many types of mergers are there?
3
Now, Section 7 of the Clayton Act prohibits....
Anti competitive mergers, no matter how undertaken
What are some legal obstacles of the Cartel?
Antitrust laws in the US that prohibit cartels and price-fixing collusion
Examples of Vertical Mergers...
Barnes & Noble abandoned merger with Ingram Book Co. (One of the largest book whole-sellers)
How do Vertical Mergers often escape Antitrust prosecution?
Because they do not substantially lessen competition in either of the two markets
Horizontal, Vertical, and conglomerate are all types of what?
Mergers
What does the Sherman Act, section 2, enforce?
That every monopoly or attempt to become a monopoly in the US or of foreign nations is guilty of felony
In pure competition, when each firms market share is minuscule...
The Herfindahl Index approaches 0 (0^2+0^2+0^2...=0^2)
After the Sherman Act was created, what group of people enforces it?
The Supreme Courts
Which act amended the Fair Trade Act?
The Wheeler Act of 1938
What was Standard Oil's punishment?
The company was divided up into several competing firms
When advertising is successful, what happens to the demand curve?
The demand curve shifts to the right and becomes more elastic
If consumers were not made aware of product differences...
The expense and effort involved in product differentiation would be wasted.
How does the number of firms effect a Cartel?
The larger the number of firms, the more difficult it is to create a Cartel or price collusion
Price fixing is not subject which rule?
The rule of reason
Who held the hearing that Standard Oil attended?
The supreme court
Why did the Wheeler Act amend the Fair Trade Act in 1938?
To give the Federal Trade Committee additional responsibility of policing "deceptive acts or practices in commerce'
How are mergers treated by the Antitrust?
Treatment of mergers varies with the type of merger and its effect on competition
When using the Herfindahl Index, conglomerate mergers remain....
Unchanged because of how different the market shares are
Which merger consists of two companies, between films, at different stages of the production process?
Vertical
Which merger had a buyer-seller relationship?
Vertical
Which mergers get away with Antitrust prosecution?
Vertical Mergers
What is an example of a Vertical Merger?
When a fabric producing company merges with a company that produces jeans.
Economic inefficiency results at what point what dealing with advertising?
When advertising leads to increased monopoly power or is self canceling
What are some examples of company's who have been indited, caught, or indicted
Whirlpool, Panasonic, Danfross, Appliance Components, Standard Oil, Alcoa, Intel, AT&T, Microsoft
The Celler-Kefauver Act prohibits what?
a firm from obtaining the physical assets of another firm ,when the effect would be reduced competition
OPEC is an example of...
a significant international cartel
Whirlpool is an example of a...?
Covert Cartel
A conglomerate merger is...
any merger that is not horizontal or vertical
What group of producers typically create a written agreement specifying how much each member will produce and charge?
Cartel; Overt
What is the most comprehensive form of collusion?
Cartel; Overt
The Federal Trade Committee can issue what?
Cease-and-desist
Which Act amended the Clayton Act, section 7?
Celler-Kefauver Act of 1950
What do you do if the postmerger Herfindahl Index is high (1,800) and the merger and if the merger has substantially increased the index (added 100 points)
Challenge a Herfindahl Index
Which act was an elaboration of the Sherman Act?
Clayton Act of 1914
Which merger can extend the line of products sold, extend the territory sold, or combine unrelated inventories?
Conglomerate
What does the Antitrust consist of?
Laws & government actions designed to prevent monopolies and promote competition
What is necessary to punish a firm who has used price-fixing as a form of collusion?
Evidence to take to court
Which Act created the 5 member, Federal Trade Commission?
Fair Trade Act of 1914
The Federal Trade Committee tries to protect the public against...
False Advertising
What happens if a firm is suggested to be a monopoly?
Firms are generally sued by the Federal Government if it has a high market share and evidence of abusive content in acruing, maintaining, or extending its market dominance
Merger Guidelines are based on the....
Herfindahl Index
Which merger consists of similar products and/or same geographic market?
Horizontal
Which type of mergers are usually allowed if one of the merging firms is suffering major and continuous losses?
Horizontal Mergers
The government used section 7 od Clayton's Acts to block...
Horizontal mergers that will substantially lessen the competition
Example of price fixing.
In 2007, British Airlines and Korean Air agreed to pay fines of $300 million each for conspiracy to fix fuel surcharges on passenger tickets and cargo
Why would some oligopolists purposely keep prices below (or limit prices) the short-run profit maximizing level?
In order to boots entry barriers
What were some of the punishments that violators of the Sherman Act received?
Issued injunctions, fines, imprisonment, the firm being divided up
The Fair Trade Act is regulated by whom?
It has joint Federal responsibility and the US Justice Department
Government Regulations can have similar effects on _____ and _______, very similarly to Cartel.
Prices and Competition
Firms desiring regulation, believe it guarantees profit. With what specifically?
Regulatory Commission, performing blocked entry
The Wheeler Act made unfair and deceptive ____________illegal
Sales Practices
Define Price-fixing.
Scheming to rig bids on Government contracts or dividing up sales in market
Price-fixing and dividing up markets were first outlawed in which act?
Sherman Act of 1890
Which act emerged in the 1870's, accumulated in the 1880s, and was enforced in 1890?
Sherman Act of 1890
What is are examples of blocked entry?
Staples & Office Depot, WorldCom & Sprint, DirecTV & DISH
What does the Sherman Act, section 1, enforce?
That any firm who commits collusion in the US or of foreign nations is guilty of conspiracy and that it is illegal
Per se violations require proof when...
accusing a firm of fixing prices, rigging bids, or dividing markets
The Wheeler Act established the Federal Trade Committee as what?
an independent Antitrust agency
The Celler-Kefauver Act prohibits...
one firm from merging with another competing firm by acquiring stock.
Why are long recessions enemies of collusion?
because slumping markets increase ATC
When dealing with advertising... Do Prices, competition, and efficiency effect firms positively or negatively?
both positive & negative
How is Advertising an efficiency enhancing activity?
by enhancing competition, advertising results in greater economic efficiency and speeds up technology.
In a cartel, how do they control the price?
by establishing the amount of output that each member will produce, or divide the market up geographically so each firm becomes a monopolist within its region
Conglomerate Mergers are generallly...
permitted
Vertical Mergers between large firms in highly concentrated industries may be....
challenged
The greater prices & profits that result from collusion may attract new entrants, foreign and domestic, this is an example of...
potential entry
in Horizontal mergers, while challenging a Herfindahl Index, you consider what other factors?
economies of scale, degree of foreign competition, and ease of entry of new firms are considered
Cartel, define.
formed when a group of previously competing firms make a formal agreement to cease competing
Cartels are ________ in the US.
illegal
In several cases of regulated firms, the commission divides up the market much like an...
illegal Cartel
The Fair Trade Act gave the FTC what power?
it allowed them to investigate unfair competitive practices on its own or at the request of an injured firm
US Steel was found innocent of monopoly because...
it had not resorted to illegal acts and was considered in "good trust"
Section 2 of the Clayton Act states....
it outlaws price discrimmiation
Section 7 of the Clayton Acts states...
it prohibits the acquisition of stocks of competing corporations when the outcome would be less competitive
Section 8 of the Clayton Acts states....
it prohibits the formation of interlocking directorates, or when a director of one firm is also on the board of another firm.
Section 3 of the Clayton Acts states...
it prohibits trying contracts, in which a producer requires a consumer to purchase another product as a condition to receiving the original product
Firms that see to be regulated desire it because...
it yields a legal monopoly that cab virtually guarantee profit
The Herfindahdal Index consists of very ________ merger guidelines.
loose
The Sherman Act is a foundation against....
monoploy
Standard Oil was found guilty of what?
monopolizing petroleum through series of abusive actions
While advertising, increasing sales output will...
reduce long-run ATC by enabling firms to obtain economies of scale
The Legal Cartel Theory suggests that...
regulation is a form of regulatory capture that results from the rent-seeking activities of private firms and the desire of politicians to be responsible in order to win re-election
Price fixing among competitors is treated...
strictly
The federal government ____________ enforces tying contracts.
strictly
Proponents of Legal Cartel Theory not that...
the Interstate Commerce Commission was welcomed by the railroads, but not supported by the thucking and airline industry because it could be unregulated competition and was destructive.
The federal government mostly enforces tying contracts when....
they are being practiced by a dominating firm
Firms may seek to be regulated if...
they believe that regulation will reduce competition and raise prices
Advertisers use 'nonprice competition' to do what?
to make price less of a factor in consumer purchases and make product differences a greater factor
Price discrimination is rarely challenged by the Federal Government except when...
when a firm uses price discrimination to block entry or drive out competition