{"id":361,"date":"2018-04-05T00:32:13","date_gmt":"2018-04-05T00:32:13","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/os-microecon-e2\/chapter\/regulating-anticompetitive-behavior\/"},"modified":"2018-06-25T17:06:02","modified_gmt":"2018-06-25T17:06:02","slug":"regulating-anticompetitive-behavior","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/chapter\/regulating-anticompetitive-behavior\/","title":{"raw":"Regulating Anticompetitive Behavior","rendered":"Regulating Anticompetitive Behavior"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Objectives<\/h3>\r\nBy the end of this section, you will be able to:\r\n<ul>\r\n \t<li>Analyze restrictive practices<\/li>\r\n \t<li>Explain tying sales, bundling, and predatory pricing<\/li>\r\n \t<li>Evaluate a real-world situation of possible anticompetitive and restrictive practices<\/li>\r\n<\/ul>\r\n<\/div>\r\n<p id=\"fs-idp23591120\">The U.S. antitrust laws reach beyond blocking mergers that would reduce competition to include a wide array of anticompetitive practices. For example, it is illegal for competitors to form a cartel to collude to make pricing and output decisions, as if they were a monopoly firm. The Federal Trade Commission and the U.S. Department of Justice prohibit firms from agreeing to fix prices or output, rigging bids, or sharing or dividing markets by allocating customers, suppliers, territories, or lines of commerce.<\/p>\r\n<p id=\"fs-idm18195664\">In the late 1990s, for example, the antitrust regulators prosecuted an international cartel of vitamin manufacturers, including the Swiss firm Hoffman-La Roche, the German firm BASF, and the French firm Rhone-Poulenc. These firms reached agreements on how much to produce, how much to charge, and which firm would sell to which customers. Firms bought the high-priced vitamins like General Mills, Kellogg, Purina-Mills, and Proctor and Gamble which pushed up the prices more. Hoffman-La Roche pleaded guilty in May 1999 and agreed both to pay a fine of $500 million and to have at least one top executive serve four months of jail time.<\/p>\r\n<p id=\"fs-idm96816368\">Under U.S. antitrust laws, monopoly itself is not illegal. If a firm has a monopoly because of a newly patented invention, for example, the law explicitly allows a firm to earn higher-than-normal profits for a time as a reward for innovation. If a firm achieves a large share of the market by producing a better product at a lower price, such behavior is not prohibited by antitrust law.<\/p>\r\n\r\n<section id=\"fs-idp130090256\">\r\n<h3>Restrictive Practices<\/h3>\r\n<p id=\"fs-idm39613024\">Antitrust law includes rules against <strong>restrictive practices<\/strong>\u2014practices that do not involve outright agreements to raise price or to reduce the quantity produced, but that might have the effect of reducing competition. Antitrust cases involving restrictive practices are often controversial, because they delve into specific contracts or agreements between firms that are allowed in some cases but not in others.<\/p>\r\n<p id=\"fs-idp72102800\">For example, if a product manufacturer is selling to a group of dealers who then sell to the general public it is illegal for the manufacturer to demand a <strong>minimum resale price<\/strong> <strong>maintenance agreement,<\/strong> which would require the dealers to sell for at least a certain minimum price. A minimum price contract is illegal because it would restrict competition among dealers. However, the manufacturer is legally allowed to \"suggest\" minimum prices and to stop selling to dealers who regularly undercut the suggested price. If you think this rule sounds like a fairly subtle distinction, you are right.<\/p>\r\n<p id=\"fs-idm74726352\">An <strong>exclusive dealing<\/strong> agreement between a manufacturer and a dealer can be legal or illegal. It is legal if the purpose of the contract is to encourage competition between dealers. For example, it is legal for the Ford Motor Company to sell its cars to only Ford dealers, and for General Motors to sell to only GM dealers, and so on. However, exclusive deals may also limit competition. If one large retailer obtained the exclusive rights to be the sole distributor of televisions, computers, and audio equipment made by a number of companies, then this exclusive contract would have an anticompetitive effect on other retailers.<\/p>\r\n<p id=\"fs-idp104355648\"><strong>Tying sales<\/strong> happen when a customer is required to buy one product only if the customer also buys a second product. Tying sales are controversial because they force consumers to purchase a product that they may not actually want or need. Further, the additional, required products are not necessarily advantageous to the customer. Suppose that to purchase a popular DVD, the store required that you also purchase a certain portable TV model. These products are only loosely related, thus there is no reason to make the purchase of one contingent on the other. Even if a customer were interested in a portable TV, the tying to a particular model prevents the customer from having the option of selecting one from the numerous types available in the market.<\/p>\r\n<p id=\"eip-194\">A related, but not identical, concept is <strong>bundling,<\/strong> where a firm sells two or more products as one. Bundling typically offers an advantage for consumers by allowing them to acquire multiple products or services for a better price. For example, several cable companies allow customers to buy products like cable, internet, and a phone line through a special price available through bundling. Customers are also welcome to purchase these products separately, but the price of bundling is usually more appealing.<\/p>\r\n<p id=\"fs-idm15199168\">In some cases, we can view tying sales and <strong>bundling<\/strong> as anticompetitive. However, in other cases they may be legal and even common. It is common for people to purchase season tickets to a sports team or a set of concerts so to guarantee tickets to the few contests or shows that are most popular and likely to sell out. Computer software manufacturers may often bundle a number of different programs, even when the buyer wants only a few. Think about the software that is included in a new computer purchase, for example.<\/p>\r\n<p id=\"fs-idm92211056\">Recall from the chapter on <a href=\"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/part\/monopoly\/\">Monopoly<\/a> that <span class=\"no-emphasis\">predatory pricing<\/span> occurs when the existing firm (or firms) reacts to a new firm by dropping prices very low, until the new firm is driven out of the market, at which point the existing firm raises prices again. This pattern of pricing is aimed at deterring new firms from entering the market. However, in practice, it can be hard to figure out when pricing is predatory. Say that American Airlines is flying between two cities, and a new airline starts flying between the same two cities, at a lower price. If American Airlines cuts its price to match the new entrant, is this predatory pricing or is it just market competition at work? A commonly proposed rule is that if a firm is selling for less than its average variable cost\u2014that is, at a price where it should be shutting down\u2014then there is evidence for predatory pricing. However, calculating in the real world what costs are variable and what costs are fixed is often not obvious, either.<\/p>\r\n<p id=\"fs-idp75050224\">The Microsoft antitrust case embodies many of these gray areas in restrictive practices, as the next Clear It Up shows.<\/p>\r\n\r\n<div id=\"fs-idp6305200\" class=\"economics clearup\">\r\n<div>\r\n<div class=\"textbox examples\">\r\n<h3>Clear it up<\/h3>\r\n<h4>Did Microsoft<sup>\u00ae<\/sup> engage in anticompetitive and restrictive practices?<\/h4>\r\n<p id=\"fs-idm1355648\">The most famous restrictive practices case of recent years was a series of lawsuits by the U.S. government against Microsoft\u2014lawsuits that some of Microsoft\u2019s competitors encouraged. All sides admitted that Microsoft\u2019s Windows program had a near-monopoly position in the market for the software used in general computer operating systems. All sides agreed that the software had many satisfied customers and that the computer software capabilities were compatible with Windows. Software that Microsoft and other companies produced had expanded dramatically in the 1990s. Having a <strong><span class=\"no emphasis\">monopoly<\/span><\/strong> or a near-monopoly is not necessarily illegal in and of itself, but in cases where one company controls a great deal of the market, antitrust regulators look at any allegations of restrictive practices with special care.<\/p>\r\n<p id=\"fs-idp3964128\">The antitrust regulators argued that Microsoft had gone beyond profiting from its software innovations and its dominant position in the software market for operating systems, and had tried to use its market power in operating systems software to take over other parts of the software industry. For example, the government argued that Microsoft had engaged in an anticompetitive form of exclusive dealing by threatening computer makers that, if they did not leave another firm\u2019s software off their machines (specifically, Netscape\u2019s Internet browser), then Microsoft would not sell them its operating system software. Government antitrust regulators accused Microsoft of tying together its Windows operating system software, where it had a monopoly, with its Internet Explorer browser software, where it did not have a monopoly, and thus using this bundling as an anticompetitive tool. The government also accused Microsoft of a form of predatory pricing; namely, giving away certain additional software products for free as part of Windows, as a way of driving out the competition from other software makers.<\/p>\r\n<p id=\"fs-idp35860912\">In April 2000, a federal court held that Microsoft\u2019s behavior had crossed the line into unfair competition, and recommended that the company be split into two competing firms. However, the court overturned that penalty on appeal, and in November 2002 Microsoft reached a settlement with the government that it would end its restrictive practices.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/div>\r\n<p id=\"fs-idp126175104\">The concept of restrictive practices is continually evolving, as firms seek new ways to earn profits and government regulators define what is permissible. A situation where the law is evolving and changing is always somewhat troublesome, since laws are most useful and fair when firms know what they are in advance. In addition, since the law is open to interpretation, competitors who are losing out in the market can accuse successful firms of anticompetitive restrictive practices, and try to win through government regulation what they have failed to accomplish in the market. Officials at the Federal Trade Commission and the Department of Justice are, of course, aware of these issues, but there is no easy way to resolve them.<\/p>\r\n\r\n<\/section><section id=\"fs-idm135966000\" class=\"summary\">\r\n<div class=\"textbox key-takeaways\"><section id=\"fs-idm135966000\" class=\"summary\">\r\n<h3>Key Concepts and Summary<\/h3>\r\n<p id=\"fs-idm131045696\">Antitrust firms block authorities from openly colluding to form a cartel that will reduce output and raise prices. Companies sometimes attempt to find other ways around these restrictions and, consequently, many antitrust cases involve restrictive practices that can reduce competition in certain circumstances, like tie-in sales, bundling, and predatory pricing.<\/p>\r\n\r\n<\/section><\/div>\r\n<div class=\"textbox exercises\"><section id=\"fs-idm135966000\" class=\"summary\">\r\n<h3>Self-Check Question<\/h3>\r\n<\/section><section id=\"fs-idp84671152\" class=\"self-check-questions\">\r\n<div id=\"fs-idm57918848\">\r\n<div id=\"fs-idm3221648\">\r\n<p id=\"fs-idp42549184\">Why would a firm choose to use one or more of the anticompetitive practices described in Regulating Anticompetitive Behavior?<\/p>\r\n\r\n[reveal-answer q=\"713254\"]Show Answer[\/reveal-answer]\r\n[hidden-answer a=\"713254\"]\r\n\r\n<section id=\"fs-idp84671152\" class=\"self-check-questions\">\r\n<div id=\"fs-idm57918848\">\r\n<div id=\"fs-idm32046784\">\r\n<p id=\"fs-idm28407472\">Because outright collusion to raise profits is illegal and because existing regulations include gray areas which firms may be able to exploit.<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/section>[\/hidden-answer]\r\n\r\n<\/div>\r\n<div id=\"fs-idm32046784\"><\/div>\r\n<\/div>\r\n<\/section><section id=\"fs-idp171735088\" class=\"review-questions\">\r\n<h3>Review Questions<\/h3>\r\n<div id=\"fs-idp72420432\">\r\n<div id=\"fs-idp104750368\">\r\n<p id=\"fs-idp21854416\">What is a minimum resale price maintenance agreement? How might it reduce competition and when might it be acceptable?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"fs-idp35027984\">\r\n<div id=\"fs-idp114097936\">\r\n<p id=\"fs-idp34889360\">What is exclusive dealing? How might it reduce competition and when might it be acceptable?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"fs-idp154752576\">\r\n<div id=\"fs-idp98638864\">\r\n<p id=\"fs-idp21982272\">What is a tie-in sale? How might it reduce competition and when might it be acceptable?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"fs-idp7318592\">\r\n<div id=\"fs-idp63931120\">\r\n<p id=\"fs-idp72787728\">What is predatory pricing? How might it reduce competition, and why might it be difficult to tell when it should be illegal?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/section><section id=\"fs-idp134688096\" class=\"critical-thinking\">\r\n<h3>Critical Thinking Questions<\/h3>\r\n<div id=\"fs-idp77974256\">\r\n<div id=\"fs-idp48376960\">\r\n<p id=\"fs-idp132713584\">Can you think of any examples of successful predatory pricing in the real world?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<div id=\"fs-idp12067664\">\r\n<div id=\"fs-idp119290768\">\r\n<p id=\"fs-idp6658480\">If you were developing a product (like a web browser) for a market with significant barriers to entry, how would you try to get your product into the market successfully?<\/p>\r\n\r\n<\/div>\r\n<\/div>\r\n<\/section><\/div>\r\n<div class=\"textbox shaded\"><section id=\"fs-idm135966000\" class=\"summary\">\r\n<h3>Glossary<\/h3>\r\n<\/section>\r\n<div>\r\n<dl id=\"fs-idp36826896\">\r\n \t<dt>bundling<\/dt>\r\n \t<dd id=\"fs-idm61180016\">a situation in which multiple products are sold as one<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idp41283808\">\r\n \t<dt>exclusive dealing<\/dt>\r\n \t<dd id=\"fs-idp150507792\">an agreement that a dealer will sell only products from one manufacturer<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idp56842032\">\r\n \t<dt>minimum resale price maintenance agreement<\/dt>\r\n \t<dd id=\"fs-idp116846736\">an agreement that requires a dealer who buys from a manufacturer to sell for at least a certain minimum price<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idp103920864\">\r\n \t<dt>restrictive practices<\/dt>\r\n \t<dd id=\"fs-idp30186400\">practices that reduce competition but that do not involve outright agreements between firms to raise prices or to reduce the quantity produced<\/dd>\r\n<\/dl>\r\n<dl id=\"fs-idm12601376\">\r\n \t<dt>tying sales<\/dt>\r\n \t<dd id=\"fs-idm23583840\">a situation where a customer is allowed to buy one product only if the customer also buys another product<\/dd>\r\n<\/dl>\r\n<\/div>\r\n<\/div>\r\n<\/section>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Objectives<\/h3>\n<p>By the end of this section, you will be able to:<\/p>\n<ul>\n<li>Analyze restrictive practices<\/li>\n<li>Explain tying sales, bundling, and predatory pricing<\/li>\n<li>Evaluate a real-world situation of possible anticompetitive and restrictive practices<\/li>\n<\/ul>\n<\/div>\n<p id=\"fs-idp23591120\">The U.S. antitrust laws reach beyond blocking mergers that would reduce competition to include a wide array of anticompetitive practices. For example, it is illegal for competitors to form a cartel to collude to make pricing and output decisions, as if they were a monopoly firm. The Federal Trade Commission and the U.S. Department of Justice prohibit firms from agreeing to fix prices or output, rigging bids, or sharing or dividing markets by allocating customers, suppliers, territories, or lines of commerce.<\/p>\n<p id=\"fs-idm18195664\">In the late 1990s, for example, the antitrust regulators prosecuted an international cartel of vitamin manufacturers, including the Swiss firm Hoffman-La Roche, the German firm BASF, and the French firm Rhone-Poulenc. These firms reached agreements on how much to produce, how much to charge, and which firm would sell to which customers. Firms bought the high-priced vitamins like General Mills, Kellogg, Purina-Mills, and Proctor and Gamble which pushed up the prices more. Hoffman-La Roche pleaded guilty in May 1999 and agreed both to pay a fine of $500 million and to have at least one top executive serve four months of jail time.<\/p>\n<p id=\"fs-idm96816368\">Under U.S. antitrust laws, monopoly itself is not illegal. If a firm has a monopoly because of a newly patented invention, for example, the law explicitly allows a firm to earn higher-than-normal profits for a time as a reward for innovation. If a firm achieves a large share of the market by producing a better product at a lower price, such behavior is not prohibited by antitrust law.<\/p>\n<section id=\"fs-idp130090256\">\n<h3>Restrictive Practices<\/h3>\n<p id=\"fs-idm39613024\">Antitrust law includes rules against <strong>restrictive practices<\/strong>\u2014practices that do not involve outright agreements to raise price or to reduce the quantity produced, but that might have the effect of reducing competition. Antitrust cases involving restrictive practices are often controversial, because they delve into specific contracts or agreements between firms that are allowed in some cases but not in others.<\/p>\n<p id=\"fs-idp72102800\">For example, if a product manufacturer is selling to a group of dealers who then sell to the general public it is illegal for the manufacturer to demand a <strong>minimum resale price<\/strong> <strong>maintenance agreement,<\/strong> which would require the dealers to sell for at least a certain minimum price. A minimum price contract is illegal because it would restrict competition among dealers. However, the manufacturer is legally allowed to &#8220;suggest&#8221; minimum prices and to stop selling to dealers who regularly undercut the suggested price. If you think this rule sounds like a fairly subtle distinction, you are right.<\/p>\n<p id=\"fs-idm74726352\">An <strong>exclusive dealing<\/strong> agreement between a manufacturer and a dealer can be legal or illegal. It is legal if the purpose of the contract is to encourage competition between dealers. For example, it is legal for the Ford Motor Company to sell its cars to only Ford dealers, and for General Motors to sell to only GM dealers, and so on. However, exclusive deals may also limit competition. If one large retailer obtained the exclusive rights to be the sole distributor of televisions, computers, and audio equipment made by a number of companies, then this exclusive contract would have an anticompetitive effect on other retailers.<\/p>\n<p id=\"fs-idp104355648\"><strong>Tying sales<\/strong> happen when a customer is required to buy one product only if the customer also buys a second product. Tying sales are controversial because they force consumers to purchase a product that they may not actually want or need. Further, the additional, required products are not necessarily advantageous to the customer. Suppose that to purchase a popular DVD, the store required that you also purchase a certain portable TV model. These products are only loosely related, thus there is no reason to make the purchase of one contingent on the other. Even if a customer were interested in a portable TV, the tying to a particular model prevents the customer from having the option of selecting one from the numerous types available in the market.<\/p>\n<p id=\"eip-194\">A related, but not identical, concept is <strong>bundling,<\/strong> where a firm sells two or more products as one. Bundling typically offers an advantage for consumers by allowing them to acquire multiple products or services for a better price. For example, several cable companies allow customers to buy products like cable, internet, and a phone line through a special price available through bundling. Customers are also welcome to purchase these products separately, but the price of bundling is usually more appealing.<\/p>\n<p id=\"fs-idm15199168\">In some cases, we can view tying sales and <strong>bundling<\/strong> as anticompetitive. However, in other cases they may be legal and even common. It is common for people to purchase season tickets to a sports team or a set of concerts so to guarantee tickets to the few contests or shows that are most popular and likely to sell out. Computer software manufacturers may often bundle a number of different programs, even when the buyer wants only a few. Think about the software that is included in a new computer purchase, for example.<\/p>\n<p id=\"fs-idm92211056\">Recall from the chapter on <a href=\"https:\/\/courses.lumenlearning.com\/suny-microeconomics2\/part\/monopoly\/\">Monopoly<\/a> that <span class=\"no-emphasis\">predatory pricing<\/span> occurs when the existing firm (or firms) reacts to a new firm by dropping prices very low, until the new firm is driven out of the market, at which point the existing firm raises prices again. This pattern of pricing is aimed at deterring new firms from entering the market. However, in practice, it can be hard to figure out when pricing is predatory. Say that American Airlines is flying between two cities, and a new airline starts flying between the same two cities, at a lower price. If American Airlines cuts its price to match the new entrant, is this predatory pricing or is it just market competition at work? A commonly proposed rule is that if a firm is selling for less than its average variable cost\u2014that is, at a price where it should be shutting down\u2014then there is evidence for predatory pricing. However, calculating in the real world what costs are variable and what costs are fixed is often not obvious, either.<\/p>\n<p id=\"fs-idp75050224\">The Microsoft antitrust case embodies many of these gray areas in restrictive practices, as the next Clear It Up shows.<\/p>\n<div id=\"fs-idp6305200\" class=\"economics clearup\">\n<div>\n<div class=\"textbox examples\">\n<h3>Clear it up<\/h3>\n<h4>Did Microsoft<sup>\u00ae<\/sup> engage in anticompetitive and restrictive practices?<\/h4>\n<p id=\"fs-idm1355648\">The most famous restrictive practices case of recent years was a series of lawsuits by the U.S. government against Microsoft\u2014lawsuits that some of Microsoft\u2019s competitors encouraged. All sides admitted that Microsoft\u2019s Windows program had a near-monopoly position in the market for the software used in general computer operating systems. All sides agreed that the software had many satisfied customers and that the computer software capabilities were compatible with Windows. Software that Microsoft and other companies produced had expanded dramatically in the 1990s. Having a <strong><span class=\"no emphasis\">monopoly<\/span><\/strong> or a near-monopoly is not necessarily illegal in and of itself, but in cases where one company controls a great deal of the market, antitrust regulators look at any allegations of restrictive practices with special care.<\/p>\n<p id=\"fs-idp3964128\">The antitrust regulators argued that Microsoft had gone beyond profiting from its software innovations and its dominant position in the software market for operating systems, and had tried to use its market power in operating systems software to take over other parts of the software industry. For example, the government argued that Microsoft had engaged in an anticompetitive form of exclusive dealing by threatening computer makers that, if they did not leave another firm\u2019s software off their machines (specifically, Netscape\u2019s Internet browser), then Microsoft would not sell them its operating system software. Government antitrust regulators accused Microsoft of tying together its Windows operating system software, where it had a monopoly, with its Internet Explorer browser software, where it did not have a monopoly, and thus using this bundling as an anticompetitive tool. The government also accused Microsoft of a form of predatory pricing; namely, giving away certain additional software products for free as part of Windows, as a way of driving out the competition from other software makers.<\/p>\n<p id=\"fs-idp35860912\">In April 2000, a federal court held that Microsoft\u2019s behavior had crossed the line into unfair competition, and recommended that the company be split into two competing firms. However, the court overturned that penalty on appeal, and in November 2002 Microsoft reached a settlement with the government that it would end its restrictive practices.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<p id=\"fs-idp126175104\">The concept of restrictive practices is continually evolving, as firms seek new ways to earn profits and government regulators define what is permissible. A situation where the law is evolving and changing is always somewhat troublesome, since laws are most useful and fair when firms know what they are in advance. In addition, since the law is open to interpretation, competitors who are losing out in the market can accuse successful firms of anticompetitive restrictive practices, and try to win through government regulation what they have failed to accomplish in the market. Officials at the Federal Trade Commission and the Department of Justice are, of course, aware of these issues, but there is no easy way to resolve them.<\/p>\n<\/section>\n<section id=\"fs-idm135966000\" class=\"summary\">\n<div class=\"textbox key-takeaways\">\n<section id=\"fs-idm135966000\" class=\"summary\">\n<h3>Key Concepts and Summary<\/h3>\n<p id=\"fs-idm131045696\">Antitrust firms block authorities from openly colluding to form a cartel that will reduce output and raise prices. Companies sometimes attempt to find other ways around these restrictions and, consequently, many antitrust cases involve restrictive practices that can reduce competition in certain circumstances, like tie-in sales, bundling, and predatory pricing.<\/p>\n<\/section>\n<\/div>\n<div class=\"textbox exercises\">\n<section id=\"fs-idm135966000\" class=\"summary\">\n<h3>Self-Check Question<\/h3>\n<\/section>\n<section id=\"fs-idp84671152\" class=\"self-check-questions\">\n<div id=\"fs-idm57918848\">\n<div id=\"fs-idm3221648\">\n<p id=\"fs-idp42549184\">Why would a firm choose to use one or more of the anticompetitive practices described in Regulating Anticompetitive Behavior?<\/p>\n<div class=\"qa-wrapper\" style=\"display: block\"><span class=\"show-answer collapsed\" style=\"cursor: pointer\" data-target=\"q713254\">Show Answer<\/span><\/p>\n<div id=\"q713254\" class=\"hidden-answer\" style=\"display: none\">\n<section id=\"fs-idp84671152\" class=\"self-check-questions\">\n<div id=\"fs-idm57918848\">\n<div id=\"fs-idm32046784\">\n<p id=\"fs-idm28407472\">Because outright collusion to raise profits is illegal and because existing regulations include gray areas which firms may be able to exploit.<\/p>\n<\/div>\n<\/div>\n<\/section>\n<\/div>\n<\/div>\n<\/div>\n<div id=\"fs-idm32046784\"><\/div>\n<\/div>\n<\/section>\n<section id=\"fs-idp171735088\" class=\"review-questions\">\n<h3>Review Questions<\/h3>\n<div id=\"fs-idp72420432\">\n<div id=\"fs-idp104750368\">\n<p id=\"fs-idp21854416\">What is a minimum resale price maintenance agreement? How might it reduce competition and when might it be acceptable?<\/p>\n<\/div>\n<\/div>\n<div id=\"fs-idp35027984\">\n<div id=\"fs-idp114097936\">\n<p id=\"fs-idp34889360\">What is exclusive dealing? How might it reduce competition and when might it be acceptable?<\/p>\n<\/div>\n<\/div>\n<div id=\"fs-idp154752576\">\n<div id=\"fs-idp98638864\">\n<p id=\"fs-idp21982272\">What is a tie-in sale? How might it reduce competition and when might it be acceptable?<\/p>\n<\/div>\n<\/div>\n<div id=\"fs-idp7318592\">\n<div id=\"fs-idp63931120\">\n<p id=\"fs-idp72787728\">What is predatory pricing? How might it reduce competition, and why might it be difficult to tell when it should be illegal?<\/p>\n<\/div>\n<\/div>\n<\/section>\n<section id=\"fs-idp134688096\" class=\"critical-thinking\">\n<h3>Critical Thinking Questions<\/h3>\n<div id=\"fs-idp77974256\">\n<div id=\"fs-idp48376960\">\n<p id=\"fs-idp132713584\">Can you think of any examples of successful predatory pricing in the real world?<\/p>\n<\/div>\n<\/div>\n<div id=\"fs-idp12067664\">\n<div id=\"fs-idp119290768\">\n<p id=\"fs-idp6658480\">If you were developing a product (like a web browser) for a market with significant barriers to entry, how would you try to get your product into the market successfully?<\/p>\n<\/div>\n<\/div>\n<\/section>\n<\/div>\n<div class=\"textbox shaded\">\n<section id=\"fs-idm135966000\" class=\"summary\">\n<h3>Glossary<\/h3>\n<\/section>\n<div>\n<dl id=\"fs-idp36826896\">\n<dt>bundling<\/dt>\n<dd id=\"fs-idm61180016\">a situation in which multiple products are sold as one<\/dd>\n<\/dl>\n<dl id=\"fs-idp41283808\">\n<dt>exclusive dealing<\/dt>\n<dd id=\"fs-idp150507792\">an agreement that a dealer will sell only products from one manufacturer<\/dd>\n<\/dl>\n<dl id=\"fs-idp56842032\">\n<dt>minimum resale price maintenance agreement<\/dt>\n<dd id=\"fs-idp116846736\">an agreement that requires a dealer who buys from a manufacturer to sell for at least a certain minimum price<\/dd>\n<\/dl>\n<dl id=\"fs-idp103920864\">\n<dt>restrictive practices<\/dt>\n<dd id=\"fs-idp30186400\">practices that reduce competition but that do not involve outright agreements between firms to raise prices or to reduce the quantity produced<\/dd>\n<\/dl>\n<dl id=\"fs-idm12601376\">\n<dt>tying sales<\/dt>\n<dd id=\"fs-idm23583840\">a situation where a customer is allowed to buy one product only if the customer also buys another product<\/dd>\n<\/dl>\n<\/div>\n<\/div>\n<\/section>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-361\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Specific attribution<\/div><ul class=\"citation-list\"><li>Principles of Microeconomics, 2nd Edition. <strong>Authored by<\/strong>: OpenStax. <strong>Provided by<\/strong>: Rice University. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/cnx.org\/contents\/5c09762c-b540-47d3-9541-dda1f44f16e5@8.1.\">http:\/\/cnx.org\/contents\/5c09762c-b540-47d3-9541-dda1f44f16e5@8.1.<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em>. <strong>License Terms<\/strong>: Download for free at http:\/\/cnx.org\/contents\/5c09762c-b540-47d3-9541-dda1f44f16e5@8.1.<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t 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