Question

1. The government has considered the following market phenomena to be "bad" and has taken steps to correct them:
   
   The first wave of antitrust legislation was aimed at breaking up monopolies (single sellers of unique products) and outlawing monopoly practices (price "gouging" and price discrimination). Diagram and explain why monopolies and monopoly behavior are "bad."
   
   The second wave of antitrust legislation was aimed at preventing the growth of monopolizes (horizontal integration of firms selling the same product) and outlawing behavior that sought to either drive out competitors or prevent their entry (discounting, entry-level pricing, and dumping). Explain why excessive competition with intent to monopolize is "bad."
   
   Subsequently, the government has attacked, by litigation, combinations based on other more strategic anti-competitive behaviors, i.e., vertical integration and agglomeration.
   Explain why vertical integration may be "bad."
   Explain why agglomeration may be "bad."
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Answer 1

1.

Vertical integration means companies in one supply chain, are integrating. For example, the manufacturer is acquiring distribution network or supplier's firm producing key raw materials. When vertical integration, takes place, then firm tries to monopolize the ownership upon resources, network and market. It leads to the anti-competitive behavior towards the other firms who could use the same participants of the supply chain. But, due to vertical integration, they will not be able to use and driven out of the market. Hence, vertical integration may be bad.

2.

Agglomeration involves clustering of firms working together. It will lead to the formation of a cartel or price fixing. Since, many firms have been combined into one, it will also build excessive market power and market concentration will also increase. It can lead to anti-competitive behavior and consumers can suffer as well. It can lead to the market failure.  Hence, agglomeration may be bad for the economy.