KEY 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