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Chapter 27: Q.10 (page 621)

Suppose that a business has developed a very high quality product and operates more efficiently in producing that product than any other potential competitor. As a consequence, at present it is the only seller of this product, for which there are few close substitutes. Is this firm in violation of U.S. antitrust laws? Explain.

Short Answer

Expert verified

This company is not breaking the Sherman Antitrust Act or any other antitrust laws in the United States.

Step by step solution

01

Introduction.

Antitrust laws, also known as competition act, are laws implemented by the US government to protect consumers from unfair business practices. They ensure that level playing field exists in an open market economy.

02

Given data.

Antitrust rules are not broken by a company that operates efficiently and effectively. If market domination is achieved through better operational operations and increased cost efficiency, the firm's conduct cannot be classified as monopolistic.

03

Explanation.

Using cost-effective technology, a company can lower the market price of its products. Other companies in the industry find it impossible to compete with this efficient company, and finally quit.

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Most popular questions from this chapter

How might the fact that this antitrust case involves three groups-movie studios, distributors, and broadcasters - complicate assessing whether consumers ultimately gain or lose from current arrangements?

A bank in Austin, Texas, has allowed its state banking license, under which it had been regulated by the Federal Deposit Insurance Corporation, a U.S. bank regulator, to expire. It has switched to a federal banking license, under which it is now regulated by the Office of the Comptroller of the Currency, another bank regulator. Do these regulators subject the bank to social or economic regulation?

Who pays for the many hours of work that numerous officials of agencies such as the Consumer Product Safety Commission devote to establishing new regulations?

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Consider the data from Problem 27-11. Suppose that antitrust authorities have determined that the relevant market includes both e-books and physical books. These authorities perceive that a monopoly situation exists that can be challenged on legal grounds if the value of the Herfindahl-Hirschman Index exceeds 5000. On the basis of this criterion, do the antitrust authorities conclude that there are grounds for a legal challenge? Explain.
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