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Principles of Microeconomics 2e

Key Terms

Principles of Microeconomics 2eKey Terms
acquisition
when one firm purchases another
antitrust laws
laws that give government the power to block certain mergers, and even in some cases to break up large firms into smaller ones
bundling
a situation in which multiple products are sold as one
concentration ratio
an early tool to measure the degree of monopoly power in an industry; measures what share of the total sales in the industry are accounted for by the largest firms, typically the top four to eight firms
cost-plus regulation
when regulators permit a regulated firm to cover its costs and to make a normal level of profit
exclusive dealing
an agreement that a dealer will sell only products from one manufacturer
four-firm concentration ratio
the percentage of the total sales in the industry that are accounted for by the largest four firms
Herfindahl-Hirschman Index (HHI)
approach to measuring market concentration by adding the square of the market share of each firm in the industry
market share
the percentage of total sales in the market
merger
when two formerly separate firms combine to become a single firm
minimum resale price maintenance agreement
an agreement that requires a dealer who buys from a manufacturer to sell for at least a certain minimum price
price cap regulation
when the regulator sets a price that a firm cannot exceed over the next few years
regulatory capture
when the supposedly regulated firms end up playing a large role in setting the regulations that they will follow and as a result, they “capture” the people usually through the promise of a job in that “regulated” industry once their term in government has ended
restrictive practices
practices that reduce competition but that do not involve outright agreements between firms to raise prices or to reduce the quantity produced
tying sales
a situation where a customer is allowed to buy one product only if the customer also buys another product
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