Market Structures and Competition Flashcards
7 cards from real CEA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Market Structures and Competition flashcards as text
Which antitrust standard evaluates a business practice by weighing its pro-competitive benefits against its anticompetitive harms?
Answer: Rule of reason
The rule of reason requires courts to balance competitive benefits and harms rather than automatically condemning certain practices as the per se rule does.
A two-part tariff as a form of price discrimination involves:
Answer: Setting a fixed entry fee plus a per-unit usage price
A two-part tariff charges consumers a lump-sum fee for access and then a per-unit price, allowing the seller to capture some consumer surplus through the entry fee.
When the four-firm concentration ratio (CR4) approaches 100%, the market is best described as:
Answer: Highly concentrated with oligopolistic or monopolistic characteristics
A CR4 near 100% means the top four firms control virtually all market output, indicating a highly concentrated structure consistent with oligopoly or monopoly.
Predatory pricing is considered anticompetitive when a dominant firm:
Answer: Sets prices below cost to drive out rivals and later raise prices to earn monopoly profit
Predatory pricing involves deliberately pricing below cost to eliminate competition, with the intent to later recoup losses through supracompetitive prices.
In a perfectly contestable market, even a monopolist will price:
Answer: At marginal cost because the threat of hit-and-run entry disciplines pricing
Contestability theory argues that if entry and exit are costless (no sunk costs), the threat of entry forces the incumbent to price at marginal cost despite being a monopolist.
Excess capacity in monopolistic competition means that society incurs:
Answer: Productive inefficiency because firms do not produce at minimum average cost
Monopolistic competition leaves firms operating below minimum efficient scale, which is productive inefficiency, though they earn zero economic profit in long-run equilibrium.
A dominant firm price leadership model predicts that:
Answer: The dominant firm sets price and smaller fringe firms take that price as given
In dominant-firm price leadership, the large firm maximizes profit accounting for the competitive fringe's supply response, while fringe firms act as price takers.