Economics Chapter 16

market structure and public policy

Average cost pricing policy -- a regulatory policy under which the government picks the point on the demand curve at which price equals average cost
trust -- an arrangement under which the owners of several companies transfer their decision-making powers to a small group of trustees, who then make decisions for all the firms
merger -- a process in which two or more firms combine operations
tie-in sales -- a business practice under which a consumer of one product is required to purchase another product
predatory pricing -- a pricing scheme under which a firm decreases its price to drive a rival outs of business and increase the price when the other firm disappears

Notes

In the case of natural monopoly, the government can regulate prices. In other industries, the government uses antitrust policies to affect the number of firms in the market, encouraging competition that leads to lower prices.

A natural monopoly occurs when they are our large scale a common use in production, said the market can support only one firm.

Under an average cost pricing policy, the regulated price for a natural monopoly is equal to the average cost of production.

The government uses antitrust policy to break up some dominant firms, prevent some corporate mergers, and regulate business practices that reduce competition.

The modern approach to merger policy uses price data to predict the effects of a merger.

In most circumstances, predatory pricing is on profitable because the monopoly power is costly to acquire and hard to maintain.

The deregulation of the airline industry led to more competition and lower prices on average, the higher prices in some markets.