Solving the problem step 1 review the chapter

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SOLVING THE PROBLEM Step 1: Review the chapter material. European countries and the European Union have laws to increase and protect competition like those in the United States. To help understand why the European Union agents found Microsoft guilty of impeding competition, it would be useful for you to review the section “Government Policy toward Monopoly,” which begins on page 488 of the textbook. Step 2: Answer the question by discussing why the European Union’s court system was with Microsoft’s actions that impeded competition. As in the United States, European governments have a strong desire to maintain a significant amount of competition in their markets to maximize the economic surplus in these markets. When a firm, in this case Microsoft, has market power, the firm has the ability to determine the price and quantity of a good that will be sold in the market. It may also mean that the firm has created artificial barriers to entry to keep other firms from competing against it in the market. The European Commission and the Court of First Instance is charged with maintaining competition in European markets. Therefore, if Microsoft has, in fact, been impeding competition, the European Commission will be obliged to take action. Source: “Protect Innovators from Microsoft’s Stifling Monopoly,” by Maurits Dolmans and Thomas Graf, Financial Times , September 13, 2007. Key Terms Antitrust laws . Laws aimed at eliminating collusion and promoting competition among firms. Collusion. An agreement among firms to charge the same price or otherwise not to compete.
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CHAPTER 14 | Monopoly and Antitrust Policy 398 Copyright . A government-granted exclusive right to product and sell a creation. Horizontal merger . A merger between firms in the same industry. Market power. The ability of a firm to charge a price greater than marginal cost. Monopoly. A firm that is the only seller of a good or service that does not have a close substitute. Natural monopoly. A situation in which economies of scale are so large that one firm can supply the entire market at a lower average total cost than can two or more firms. Network externalities. The situation where the usefulness of a product increases with the number of consumers who use it. Patent. The exclusive right to a product for a period of 20 years from the date the product was invented. Public franchise. A designation by the government that a firm is the only legal provider of a good or service. Vertical merger . A merger between firms at different stages of production of a good. Self-Test (Answers are provided at the end of the Self-Test.) Multiple-Choice Questions
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