Cohen Microeconomics: Chapter 10

civil offences in the competition act

less serious than criminal offences include mergers, abusing a business's dominant market position, and other actions that lessen competition penalties = fines and legal prohibitions of mergers and anti-competitive business practices

The 1986 Competition Act aims to ...

maintain and encourage competition in Canada in order to promote the efficiency and adaptability of the Canadian economy

when markets produce outcomes that are inefficient or inequitable

market failure

outcome of a game in which each player makes their own best choice given the choice of the other

nash equilibrium

economies of scale allow only a single seller to achieve lowest average total cost

natural monopoly

economic thinking cannot make _______________ policy choices for you

normative

a game with two players who must each make a strategic choice, where results depend on the other player's choice

prisoners' dilemma

government regulation eliminates waste, achieves efficiency, and promotes the public interest

public-interest view

sets a price allowing the regulated monopoly to just cover average total costs, including normal profits

rate of return regulation

if the public interest view is true, we expect prices and profits to __________ after deregulation

rise

key insight of game theory is the ...

tension between the nash equilibrium outcome (players who can't trust each other's best choice is to cheat/confess) and the better outcome (if both players trust each other and cooperate/deny)

natural monopolies are only as natural as ...

the current technology

economic thinking can help you answer the positive question ...

will government action improve market failure outcomes, or will government action fail and produce a worse outcome than market failure?

publicly owned businesses in Canada

Crown corporations

if the capture view is true, we expect prices and profits to __________ after deregulation

fall

with natural monopolies the challenge for policymakers is to ...

gain low cost efficiencies of economies of scale but avoid inefficiencies of monopoly's restricted output and higher price

a mathematical tool for understanding how players make decisions, taking into account what they expect rivals to do

game theory

when regulations fail to serve public interest

government failure

regulated natural monopolies tend to earn _______________ rates of return than the average rate of profits in the economy

higher

criminal offences in the competition act

include price fixing, bid rigging, and false or misleading advertising penalties = fines and prison sentences

market failure can be evaluated in terms of ...

inefficiency

why public ownership/crown corporations is not a perfect solution

lack of competitive pressure; incentives are weak for reducing costs or increasing efficiency or exploring new and innovative technology

The Competition Act distinguishes two kinds of anti-competitive offences w different legal penalties

- criminal offences - civil offences

forms of regulation

- government departments - agencies and boards, usually called commissions - professional associations

with the complication of trust there are 2 smart choices...

- keeping gas prices simultaneously high is one smart choice based on trust - gas price wars, another smart choice, break out when there is no trust

two major policies that governments around the world use to deal with this challenge

- public ownership - regulation

the only way to achieve the efficiency of lowest cost production in businesses w economies of scale is to have ...

a single large business supply the entire market

in principle, government regulators try to set prices that just cover ...

average total costs, including normal profits

Parliament passed the first anti-combines act in 1889 making it illegal for...

businesses to combine to form monopolies or near-monopolies

the fact that the rate of return is greater than the economy average supports the ________________ view

capture

government regulation benefits the regulated businesses, not the public interest

capture view

association of suppliers formed to maintain high prices and restrict competition

cartel

"let the buyer beware" - the buyer alone is responsible for checking the quality of products before buying

caveat emptor

conspiracy to cheat or deceive others

collusion

it is hard to distinguish _______________ behaviour from _________________ behaviour

competitive, collusive

according to the capture view, ________________________________________ to businesses make regulations worth lobbying for, while ____________ costs to individual consumers do not create political pressure for regulators to serve the public interest

concentrated benefits, small

why regulated price monopoly/rate or return regulation is not a perfect solution

creates an incentive for managers of the regulated business to exaggerate their reported costs, since they are guaranteed a normal rate of return on all costs

an active attempt to increase profits and gain the market power of monopoly

desirable competitive behaviour

the purpose of regulated natural monopolies, crown corporations and competition laws is to ...

discourage collusion and cartels