A cartel is a group of competing firms that agree to coordinate their prices and output so that together they act like a single monopoly.
Missing Word
cartel
A cartel is a formal agreement among competitors to set prices and output jointly instead of competing. U.S. antitrust law treats such agreements as illegal.
Category: Anticompetitive Practices
Question 2
The removal of government controls over prices and entry in industries such as airlines and trucking, which began in the 1970s, is called deregulation.
Missing Word
deregulation
Deregulation means ending government rules that set prices or limit which firms may enter an industry, letting market competition decide them instead.
Category: Deregulation
Question 3
Passed in 1890, the Sherman Act was the first federal law in the United States aimed at curbing monopoly power.
Missing Word
Sherman
The Sherman Act of 1890 was the first U.S. federal antitrust law. Later laws, such as the Clayton Act of 1914, added more specific rules.
Category: Mergers and Antitrust Law
Question 4
In the late 1800s, some dominant companies were organized as trusts, in which a small group of managers ran several formerly independent firms as if they were one company.
Missing Word
trusts
A trust placed formerly independent firms under the control of one group of managers, so they could act like a single monopoly instead of competing. Public concern about trusts led Congress to pass the Sherman Act in 1890, and U.S. laws against monopoly are still named after them.
Category: Mergers and Antitrust Law
Question 5
A firm whose monopoly comes from a patent on a new invention is not breaking the law, since that temporary monopoly is a reward for innovation.
Missing Word
patent
A patent grants exclusive legal rights to an invention for a limited time. Monopoly gained this way is legal because it rewards the costly work of inventing.
Category: Mergers and Antitrust Law
Question 6
The Herfindahl-Hirschman Index is found by adding up the squares of the market shares of every firm in the industry.
Missing Word
squares
Squaring each share before adding makes large firms count far more than small ones, which is why the index can tell apart industries that a simple concentration ratio would rate the same.
Category: Measuring Concentration
Question 7
If a natural monopoly is required to charge a price equal to marginal cost, it will lose money and can stay in business only with an ongoing government subsidy.
Missing Word
subsidy
A subsidy is a payment from the government to the firm. Because marginal cost lies below average cost when average cost is falling, a price equal to marginal cost does not cover costs, and the gap must be paid by the public.
Category: Natural Monopoly Regulation
Question 8
In the United States, the laws that give the government power to block certain corporate combinations and break up large firms are called antitrust laws.
Missing Word
antitrust
Antitrust laws, which date back to the late 1800s, aim to preserve competition by limiting anticompetitive mergers and business practices.
Category: Mergers and Antitrust Law
Question 9
Measured concentration in many U.S. industries has fallen because of globalization, the growth of trade and competition across national borders.
Missing Word
globalization
Globalization brings foreign producers into domestic markets, so concentration measures that once stopped at the national border overstate how dominant domestic firms really are.
Category: Measuring Concentration
Question 10
Because a domestic four-firm concentration ratio leaves out imports, the goods that foreign firms sell in the U.S. market, it can overstate how concentrated that market really is.
Missing Word
imports
Imports are goods and services bought from producers in other countries. A concentration measure that counts only domestic producers ignores this foreign competition, so the leading firms look more dominant than they are. Measuring concentration on a global basis usually shows lower concentration.
Category: Measuring Concentration
Question 11
When airlines were freed from federal control over fares and routes in 1978, government oversight of their safety continued, and the risk of accidents kept falling.
Missing Word
safety
Airline deregulation removed the government's control over prices, routes and entry, not its role in protecting passengers. Government inspectors kept enforcing safety rules, and air travel continued to become safer while fares fell and competition increased.
Category: Deregulation
Question 12
Under price cap regulation, a firm whose costs rise faster than its capped price will see its profits shrink and may even suffer losses.
Missing Word
losses
Losses occur when costs exceed revenue. Because the cap does not rise with the firm's own costs, the firm bears the risk of rising costs as well as the reward for cutting them.
Category: Natural Monopoly Regulation
Question 13
Bundling is the practice of selling several products together as one package at a combined price, while usually still letting customers buy each item separately.
Missing Word
Bundling
Bundling offers a package deal, such as cable, internet and phone service together. It differs from a tying sale, where the customer cannot buy the first product without the second.
Category: Anticompetitive Practices
Question 14
Regulated firms can contribute to regulatory capture through lobbying, the practice of directly pressuring officials to adopt rules that favor them.
Missing Word
lobbying
Lobbying is the effort to influence officials' decisions. When an industry's lobbying and information shape its own rules, regulators may serve the industry rather than consumers.
Category: Deregulation
Question 15
In the government's case over the Windows operating system, computer makers were said to have been pressured to leave out the rival Netscape browser.
Missing Word
Netscape
Netscape made the leading rival web browser of the 1990s. The government alleged that computer makers were threatened with losing access to Windows if they included it, an example of exclusive-dealing pressure.
Category: Anticompetitive Practices