Question

Discuss specific firm behavior that reduced the level of competition in an industry. What are the opportunity cost of greater concentration?

Answer 1

Dumping, where a company sells a product in a competitive market at a loss. Though the company loses money for each sale, the company hopes to force other competitors out of the market, after which the company would be free to raise prices for a greater profit.

Exclusive dealing, where a retailer or wholesaler is obliged by contract to only purchase from the contracted supplier.

Price fixing, where companies collude to set prices, effectively dismantling the free market.

Refusal to deal, e.g., two companies agree not to use a certain vendor

Dividing territories, an agreement by two companies to stay out of each other's way and reduce competition in the agreed-upon territories.

Limit Pricing, where the price is set by a monopolist at a level intended to discourage entry into a market. (Ex. Licensing)

Tying, where products that aren't naturally related must be purchased together.

Resale price maintenance, where resellers are not allowed to set prices independently.

Religious / minority group doctrine, where businesses must apply tribute to a significant (normally religious) part of the community in order to engage in trade with that community. (A business that does not comply will be 50% worse off than the competitor if they do not comply with the tribute demanded by just 20% of the community)

Absorption of a competitor or competing technology, where the powerful firm effectively co-opts or swallows its competitor rather than see it either compete directly or be absorbed by another firm.

Subsidies from government which allow a firm to function without being profitable, giving them an advantage over competition or effectively barring competition

Regulations which place costly restrictions on firms that less wealthy firms cannot afford to implement

Protectionism, Tariffs and Quotas which give firms insulation from competitive forces

Patent misuse and copyright misuse, such as fraudulently obtaining a patent, copyright, or other form of intellectual property; or using such legal devices to gain advantage in an unrelated market.

Digital rights management which prevents owners from selling used media, as would normally be allowed by the first sale doctrine.