1. What is a trust?
    •A combination or cartel consisting of firms that place their assets in the custody of a board of trustees
  2. What ispredatory pricing?
    •The practice of one or more firms temporarily reducing prices in order to eliminate competition and then raising prices
  3. When was the age of the robberbarons?
    in the later part of the 1800's
  4. What was done to limit the powerof trusts?
    •Congress passed laws aimed at preventing firms from engaging in anticompetitive activities
  5. What is theSherman Act?
    •The federal antitrust law enacted in 1890 that prohibits monopolization and conspiracies to restrain trade
  6. What is the Clayton Act?
    •A 1914 amendment that strengthens the Sherman Act by making it illegal for firms to engage in certain anticompetitive business practices
  7. What business practices weredeclared illegal under the Clayton Act?
    •Price discrimination•Exclusive dealing•Tying contracts•Stock acquisition of competing companies•Interlocking directorates
  8. Was the Clayton Act animprovement over the Sherman Act?
    •Although more specific than the Sherman Act, the Clayton Act is also vague
  9. What is the Federal TradeCommission Act?
    •The federal act that in 1914 established the Federal Trade Commission (FTC) to investigate unfair competition
  10. What is theRobinson-Patman Act?
    •A 1936 amendment to the Clayton Act that strengthens the Clayton Act against price discrimination
  11. What is the basic purpose of theRobinson-Patman Act?
    •To prevent large sellers from offering different prices to different buyers where the effect is to harm even a single small firm
  12. What is theCeller-Kefauver Act?
    •A 1950 amendment to the Clayton Act that prohibits one firm from merging with a competitor by purchasing its physical assets if the effect is to substantially lessen competition
  13. What are some key antitrustcases?
    •Standard Oil Case 1911•Alcoa Case 1945•IBM Case 1982•AT&T Case 1982•MIT Case 1992•Microsoft Case 2001
  14. What was the outcome of theStandard Oil Case?
    The rule of reason
  15. What is therule of reason?
    •The antitrust doctrine that the existence of monopoly alone is not illegal unless the monopoly engages in illegal business practices
  16. What was the outcome of the Alcoacase?
    The per se rule
  17. What is the
    per se rule?
    •The antitrust doctrine that the existence of monopoly alone is illegal, regardless of whether or not the monopoly engages in illegal business practices
  18. What was the result of the IBMcase (1982)?
    A switch back to the rule of reason
  19. What was the result of theAT&T case (1982)?
    •Technology made this government-regulated natural monopoly obsolete, and AT&T was found guilty of anticompetitive pricing
  20. What was the result of the MITcase (1992)?
    •Eight Ivy League schools agreed to stop colluding to fix prices, and MIT was found guilty of price fixing
  21. What was the Microsoft case of2001?
    •This case charged Microsoft with predatory pricing by tying its monopoly in Windows to its Internet Explorer browser
  22. How can firms avoid charges ofprice fixing?
    •They can merge into one company
  23. When did a lot of mergers begin taking place
    In the 1980's
  24. What are the different types ofmergers?
    -horizontal -vertical -conglomerate
  25. What is ahorizontal merger?
    •A merger of firms that competes in the same market
  26. What is avertical merger?
    a merger of a firm with its suppliers
  27. What is aconglomerate merger?
    •A merger between firms in unregulated markets
  28. What can be said about conglomerate mergers?
    •They are generally allowed because they do not significantly decrease competition
  29. What can be said about antitrustlaws in other countries?
    •They are weak in comparison to U.S. antitrust laws
  30. What is the history of government regulation?
    •From the later part of the 1800’s to the 1970’s, there was an increase in regulation; in the 1970’s there was a movement toward deregulation
  31. What is the basic argument infavor of government regulation?
    Market failure
  32. In what ways does the marketfail?
    •Natural monopoly•Externalities•Imperfect information
  33. What is anatural monopoly?
    •An industry in which long-run average cost is minimized when only one firm serves the market
  34. What is marginal cost pricing?
    •A system of pricing in which the price charged equals the marginal cost of the last unit produced
  35. What is the conclusion?
    •Government regulators can achieve efficiency for a natural monopoly by setting a price ceiling equal to the intersection of the demand and MC curves
  36. What is the downside ?
    •The policy results in losses, so an alternative is to set a price ceiling, called the fair-return price, that yields a normal profit but is somewhat inefficient
  37. What kind of profit is made atthefair return price?
    Normal Profit
  38. What is anormal profit?
    •The accounting profit required to induce a firm’s owners to employ their resources in the firm
  39. Do production costs includenormal profit?
    •Yes, because normal profit is considered a necessary expense of a business
  40. What is anegative externality?
    •An undesirable byproduct of the economic system
  41. What happens when the negativeexternality of pollution is present?
    •Pollution causes polluting firms to overproduce, while causing firms that pay the cost of cleaning up the pollution to underproduce
  42. What can be done when pollutionis present?
    •The government can regulate the industry to minimize the pollution
  43. What happens with imperfectinformation?
    •Deficient information on unsafe products can cause consumers to overconsume a product
  44. Consumers informed of defect--> decrease in demand--> Decrease in quantity supplied

Card Set
irvin b. tucker