Econ Chapter 26

The Justice Department considers a Herfindahl index less than __________ to be representative of an unconcentrated (competitive) industry.

1,000

What is the Herfindahl index of an industry made up of ten equal-sized firms?

1,000

What is the Herfindahl index of a monopoly?

10,000

What is the maximum value of the Herfindahl index?

10,000

If there are five firms in an industry and the market shares of the firms are 35 percent, 25 percent, 20 percent, 16 percent and 4 percent. The four-firm concentration ratio for this industry is __________________ percent and the Herfindahl Index is ________________.

96; 2,522.

Modern Justice Department guidelines evaluate mergers according to how they would change the industry's

Herfindahl index

In Industry A, the largest four firms together have a 30 percent share of the market and there are a total of eight firms in the market. In Industry B, the largest four firms together have a 30 percent share of the market and there are 100 other firms in the market. If we want to distinguish between the concentration in these two industries, the best measure to use is the

Herfindahl index.

The Herfindahl index is obtained by

adding the squares of the market shares of each firm in the industry.

An "interlocking directorate" is

an arrangement whereby the directors of one company sit on the board of directors of another company in the same industry.

"Tying contracts" are

arrangements whereby the sale of one product is dependent on the purchase of some other product.

The Justice Department considers a Herfindahl index that is ____________________________ to be representative of a moderately concentrated industry.

between 1,000 and 1,800

If government regulators want a natural monopolist to earn only zero economic profits, then they will set a price

equal to average total cost (ATC).

The Justice Department considers a Herfindahl index ____________________________ to be representative of a concentrated industry.

greater than 1,800

One of the criticisms of average cost regulated pricing of a natural monopoly is that the firm

has no incentive to hold costs down.

The Justice Department most closely examines proposed __________ mergers.

horizontal

The merger of two firms producing personal computers is an example of a __________ merger.

horizontal

The type of merger most likely to reduce competition in an industry is a(n) __________ merger.

horizontal

The type of merger that is most likely to change the degree of concentration, or competition, in an industry is the __________ merger.

horizontal

Natural monopoly exists when

one firm can supply the entire output demanded at lower cost than two or more firms can.

Regulatory lag" refers to the period between the time when

the natural monopolist's costs change and the time the regulatory agency adjusts the monopolist's prices.

The Federal Trade Commission Act of 1914 declared illegal

unfair or overly aggressive methods of competition.

If two firms in the same industry (but at different stages of the production process) merged, this would be a(n) __________ merger.

vertical

The merger of a brewery with an aluminum can producer is an example of a __________ merger.

vertical

The primary intent of antitrust legislation is to

control monopoly power and preserve and promote competition.

Antitrust law is legislation passed for the stated purpose of

controlling monopoly power and preserving and promoting competition.

The Wheeler-Lea Act of 1938 empowered the Federal Trade Commission to

deal with false and deceptive advertising

The Herfindahl index measures the

degree of concentration in an industry.

The Cellar-Kefauver Antimerger Act of 1950 was designed to

prevent one company from acquiring another company's physical assets if the acquisition reduces competition.

The Sherman Act of 1890 was passed with the intent of

preventing monopolization and/or conspiracy in the restraint of trade.

The public interest theory of regulation holds that

regulators are seeking to do and will do through regulation what is in the best interest of the public.

Which antitrust legislation made price discrimination illegal?

the Clayton Act

"Exclusive dealing" refers to

selling to a retailer on the condition that the retailer not carry any rival products.

Exclusive dealing" is

selling to a retailer on the condition that the retailer not carry any rival products.

The Robinson-Patman Act of 1936 prohibited

suppliers from offering price discounts to large retailers unless they also offered discounts to all other retailers.