Market Differences
What is the difference between a natural and a legal monopoly? which is more common?
a natural monopoly occurs when a natural barrier blocks any other company from joining the industry and competing. A legal monopoly results when the government gives a firm the exclusive right to provide a good or service.
legal more common
how do tight oligopolies and loose oligopolies differ/.
tight oligopolies are industries in which the top four companies produce 75 percent of the market sales
loose oligopolies are industries in which the top four firms account for 50-75 percent of the industry's total sales
Of the four types of competition, which is most prevalent in America today?
imperfect
what is the full name of the FTC, and what is its purpose?
The Federal Trade Commission was created to enforce the Clayton Act
what is the definition of collusion? What type of competition is most prone to this behavior?
collusion is an agreement among a small number of producers to reduce output and increase prices with the intent to make more money. This method is most workable for oligopolies
what is the distinction between differentiated and undifferentiated products? Give an example of each
differentiated products are visibly different from one firm to another
undifferentiated products are exactly alike, regardless of which firm produces them
WHERE IS IT COMMON TO FIND MONOPOLIES?
Public utilities
What is the most well known cartel today?
OPEC
what was America's first major legislation against monopolies?
the Sherman Antitrust Act
synergy
one plus one equals three
explain the difference between a natural barrier to entry and an artificial barrier to entry.
natural barriers to entry occur when firms in the industry already own all of one or more of the natural resources necessary for the product. An artificial barrier results from governmental regulation
in imperfect competition a firm's ability to control prices results directly from what other ability?
the ability to differentiate its product(s) from the rest of the market's
what does competition encourage?
quality and efficiency
What was outlawed by the Clayton Act?
tying contracts
price discrimination
interlocking directorates
anticompetitive takeovers
what is a trust?
a trust is created when the head of an industry's largest company persuades the other firms to combine their stock in one account. He then administrates the account, controlling the promotion, quantity, and prices of each firm's products
Name the four aspects that distinguish one industry from another
number of firms in the industry
difference between products produced within the industry
the industry's control over prices
ease or difficulty of entering/exiting the industry
oligopoly characteristics
very few firms
product differentiation depends could be both
greater control of price
hard to enter/exit market
mutual interdependence
Monopoly characteristics (number of firms, product differences, control of price, entering/exiting the market)
1
only 1 product
great ability to control price
very difficult to enter and leave the market
major issues dealt with by the subsequent antitrust laws
protecting consumers
selling products for unreasonably low prices
buying some of the competition's assets
From an economist's point of view, what is a market?
the arrangements that people make for trading
why do consumers in a free economy not need to overly fear the power of a monopoly
in a free economy, consumers can choose to go without a company's product by buying alternative products or by inventing a substitute
perfect competition characteristics
greater number of firms
fewer differences of products
less ability to control price
easy to enter/exit market
imperfect competition characteristics
large number of firms
differentiated in some way
affect price to a small degree
relatively easy to enter/exit market
Name and describe a specific activity discussed in the text as being outlawed by the Clayton Act
see text
what is the economic definition of an industry
a group of businesses that share common concerns