11/24/1425 questions word for word from first 4 examsMonopolyAny firm-not just a monopoly—that faces a downward sloping demand curve will have SOME amount of market powerMarket power causes “harm” when the good is a necessity with few/no substitutesPrice gouging for gasolineMarket powerGovernment intervention is not justified in every case that involves market powerAbuse of market powerUndue market powerExorbitant market powerMergers…Two firms merging reduces number of substitutesNumber of substitutes determines elasticityElasticity determined market powerMarket power represents price higher than competitive levelTwo Types of MergersHorizontal merger: two firms in the same market/industry competing with each otherAT&T and T-MobileTime Warner and ComcastVertical merger: two firms in different states of production of the goodComcast and NBC/UniversalWho Looks at MergersDepartment of JusticeFederal Trade CommissionIn some cases other government entities:Federal Communicators CommissionFederal Energy Regulatory CommissionState public service commissionsMergers Create Efficiencies—Lower Costs (pg. 296)Fixed costs spread over larger output produces economies of scaleElimination of duplicate functions (overhead functions)Will these efficiencies be passed on to customers?Merger GuidelinesMeasures of Industry ConcentrationFour firms concentration ratio: percent of the market accounted for by the top four firmsUsually measured in dollars or salesHerfindahl Index: measures market concentrationEach firm’s market share is squared…Then all forms are added together< 2500 is an “unconcentrated industry”generally accepted the greater the……….Herfindahl Index and Merger Guidelines (pg. 497-498)Herfindahl indices used to determine whether the government will approve mergers….If Herfindahl Index is <1500, the merger will not be challengedIf Herfindahl Index between 1500 and 2500, if merger increases HH index by > 100 merger…….Anti-TrustEntire field of law and economics looking at:Are firms operating as monopolies and are consumers harmed by this?MicrosoftGoogleAT&TKodakNatural MonopolyTwo water companies would be wasteful & inefficientOne company can serve entire market cheaply than two couldGovernment steps in, grants license to………Regulating a Natural Monopoly (pg.498)Regulated price where P = ATCExam 5 Notes 11/24/201411/24/1425 questions word for word from first 4 examsMonopoly-Any firm-not just a monopoly—that faces a downward sloping demand curve will have SOME amount of market power-Market power causes “harm” when the good is a necessity with few/no substitutes-Price gouging for gasolineMarket power-Government intervention is not justified in every case that involves market poweroAbuse of market poweroUndue market poweroExorbitant market power-Mergers…oTwo firms merging reduces number of substitutesoNumber of substitutes determines elasticityoElasticity determined market poweroMarket power represents price higher than competitive levelTwo Types of Mergers-Horizontal merger: two firms in the same market/industry competing with each otheroAT&T and T-MobileoTime Warner and Comcast-Vertical merger: two firms in different states of production of the goodoComcast and NBC/UniversalWho Looks at Mergers-Department of Justice-Federal Trade Commission-In some cases other government entities:oFederal Communicators CommissionoFederal Energy Regulatory CommissionoState public service commissionsMergers Create Efficiencies—Lower Costs (pg. 296)-Fixed costs spread over larger output produces economies of scale-Elimination of duplicate functions (overhead functions)-Will these efficiencies be passed on to customers?Merger GuidelinesMeasures of Industry Concentration-Four firms concentration ratio: percent of the market accounted for by the top four firmsoUsually measured in dollars or sales-Herfindahl Index: measures market concentrationoEach firm’s market share is squared…oThen all forms are added together< 2500 is an “unconcentrated industry”-generally accepted the greater the……….Herfindahl Index and Merger Guidelines (pg. 497-498)-Herfindahl indices used to determine whether the government will approve mergers….-If Herfindahl Index is <1500, the merger will not be challenged-If Herfindahl Index between 1500 and 2500, if merger increases HH index by > 100 merger…….Anti-Trust-Entire field of law and economics looking at:oAre firms operating as monopolies and are consumers harmed by this?MicrosoftGoogleAT&TKodakNatural Monopoly-Two water companies would be wasteful & inefficient-One company can serve entire market cheaply than two could-Government steps in, grants license to………Regulating a Natural Monopoly (pg.498)-Regulated price where P =
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