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

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