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44 Cards in this Set

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