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44 Cards in this Set
- Front
- Back
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competitive model assumptions
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homogeneous goods
many buyers and sellers perfect information lack of barriers |
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homogeneous goods
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one price prevails in the market
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many buyers and sellers
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individuals are price takers
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perfect information
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one price prevails in the market
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lack of barriers
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profits are zero
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shut down point
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price is less than average variable costs
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constant cost industry
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input costs are unaffected by entry and exit
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increasing cost industry
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costs increase with entry and decrease with exit
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decreasing cost industry
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costs decrease with entry and increase with exit
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what's so great about competition?
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efficiency, maximizes total surplus
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productive efficiency
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must produce at lowest cost possible
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allocative efficiency
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cost of producing marginal unit is equal to the value consumers place on that unit
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monopoly assumptions
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single seller
barriers to entry |
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Lerner Index
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ability to increase price above MC= (P-MC)/P = %markup = 1/Ed
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patent
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lasts 20 years from time of application- exclusive seller
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productive efficiency
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must produce at lowest cost possible
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allocative efficiency
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cost of producing marginal unit is equal to the value consumers place on that unit
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monopoly assumptions
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single seller
barriers to entry |
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Lerner Index
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ability to increase price above MC= (P-MC)/P = %markup = 1/Ed
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patent
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lasts 20 years from time of application- exclusive seller
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natural monopoly
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large economies of scale make a single firm more efficient than several small firms in some cases
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dead weight loss
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real cost of a monopoly
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innovation market
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competition to develop new drug
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orphan drug
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drug for not so common diseases
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4 firm concentration ratio
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sum of the market shares of the four largest firms
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herfindahl-hirschman index (HHI)
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sum of squared market shares for all market participants- higher is more concentrated- used to decide which cases to look at
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pools
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more formal agreements not to compete- unenforceable
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trust
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put all competitive assets under common control- one guy decides output for whole group
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sherman antitrust act
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prevented conspiracies in restraint of trade- prevents unilateral attempts to monopolize
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per se actions
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automatically illegal
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rule of reason
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have to prove impact
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clayton act
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outlawed:
price discrimination exclusionary behaviors mergers that lessen comp. |
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robinson patman act
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updated clayton act:
banned price disrimination when found to be anticompetitive |
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exclusionary behavior
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tying sales
requirments contracts exclusive dealing territorial restrictions |
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federal trade commission act
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created FTC- outlawed unfair behavior
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bureau of cometition
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enforces antitrust laws
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bureau of consumer protection
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advertising, fraud, etc
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bureau of economics
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supports other bureaus
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superior efficiency
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"good monopoly"- better business model
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cross price elasticity
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(%changeQx)/(%changePy)
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SSNIP test
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a market is the smallest group such that the price increase could be profitably sustained
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elzinga-hogarty test
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test geographic market- little in from outside and little out from inside
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bain index of monopoly power
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measure of excess profits
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residual demand curve
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market demand at a given price munus what other firms are willing to supply at that price
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