Competition policy tries to
enhance efficiency by
promoting or safeguarding
competition.
Industrial policy aims to offset
externalities affecting
production decisions by firms.
Intellectual property is the
recognition that the creator of
new knowledge may, for a
period, own it as an asset from
which income may be derived.
This temporary legal monopoly
is called a patent in the case of
inventions and a copyright in
the case of works of literature
or music.
Research is the process of
invention, the creation of new
knowledge. Development is
the process of innovating to
make research commercially
viable.
Sunrise industries are the
emerging new industries of the
future.
Sunset industries are those in the past, now in long-term decline.
Economic geography means
that a firm’s location affects its
production costs. A beneficial
locational externality occurs if
a firm’s costs are reduced by
locating near similar firms.
The industrial base of a
country or region is a measure
of the stock of existing
producers available to provide
such locational externalities.
Producer surplus (profit) is the
excess of revenue over total
costs. Total costs are the area
under the LMC curve up to this
output. Consumer surplus is
the triangle showing the excess
of consumer benefits over
spending. It is the area under
the demand curve at this
output, minus the spending
rectangle.
The social cost of monopoly
is the failure to maximize social
surplus.
At an output below the efficient
level, the deadweight burden
triangle shows the loss of social
surplus.
Cream-skimming confines
entry to profitable parts of the
business, undermining scale economies elsewhere.
The Office of Fair Trading is
responsible for making markets
work well for consumers, by
protecting and promoting
consumer interests while
ensuring that businesses are
fair and competitive.
The Competition Commission
investigates whether a
monopoly, or potential
monopoly, acts as ‘a substantial
lessening of competition’.
A firm makes a takeover bid
for another firm by offering to
buy out the shareholders of the
second firm.
A merger is the voluntary union
of two firms that think they will
do better together.
A horizontal merger is the
union of two firms at the same
production stage in the same
industry. A vertical merger is
the union of two firms at
different production stages in
the same industry. In a
conglomerate merger, the
production activities of the two
firms are unrelated.
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