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CLEP Microeconomic Notes 1

Interlocking dictatorship when a person serves as the

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Interlocking Dictatorship – when a person serves as the director of two or more competing companies a) Prohibited by the Clayton Act of 1914 135) Vertical Agreements with antitrust concerns are: (a.i.1) Tie-in Agreement – customers have to buy a product (they don’t want) to get another product (a.i.2) Price Discrimination – different people are charged different prices for the same product (a.i.3) Exclusive Distributor – only one distributor can sell a product (a.i.4) Exclusive Dealing – a distributor can only sell one manufacturers product a.ii) Vertical agreements are agreements with the buyers and sellers. 136) Horizontal Agreements – an agreement between two businesses that are in competition a) A per se violation of the Sherman Act
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b) Reduces competition 137) Per Se violation – an action that is considerer anti-competitive and intrinsically illegal a) Examples of per se violations: (a.i.1) Price Fixing - when several competitors agree to raise the price of a product – results in a higher price than the market can bear (a.i.2) Price Discrimination - when a firm charges two parties different prices for the exact same product or service 138) Potential Entrant Effect - when the potential of a new competitor drives businesses to efficiency and lower prices for the consumer a.i) Conglomerate Mergers can be challenged on the basis of “Potential Entrant Effect” if: (a.i.1) The threat of potential entrant influenced the industry (a.i.2) Company could have entered the market without the merger taking place (a.i.3) The number of potential entrants is small a.ii) The problem with mergers and acquisitions is it can eliminate the potential entrant effect 139) Group Boycotts – per se violations of the Sherman Act of 1890 – occurs when a group of companies pressure a manufacturer to terminate its relationship with one company a) Definitions a.i) Group Boycott – because of pressure from many retailers, a manufacturer decides to not longer sell to an individual retailer a.ii) Refusal to deal – a manufacturer decides to no longer sell to a retailer 140) Market Division –is when competitors in the same industry divide up a large territory into segments, a) Restricts customers access to a free market a.i) by dividing the territories they create monopolies a.ii) a per se violation of the Sherman Act of 1890, a.iii) Also known as Horizontal Territorial Limitations 141) Monopolistic Competition is the most prominent type of market structure in the United States a) Monopolistic competition is inefficient due to excess capacity a.i) Ex: a restaurant that is only busy at lunch a.ii) Produces less output than perfect competition and the output it produces is at a higher price b) In the long Run a monopolistic competitor will make normal profits (economic profits are zero in the long run) similar to a perfect competitor b.i)With one difference: (b.i.1) Monopolistic Competition: Price (P) = Average Total Cost (ATC) NOT at Minimum (b.i.2) Perfect competition: Price (P) = Average Total Cost (ATC) at the Minimum b.ii) Since monopolistic competition is inefficient
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Interlocking Dictatorship when a person serves as the...

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