econ presentation - market allocation mandy cheng (5) nonie cheng (6)
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Econ presentation- Market allocation
Mandy Cheng (5)Nonie Cheng (6)
News Summary Golf Galaxy: operating a chain of U.S.-based golf
superstores that offers a wide range of merchandise and related services
Golf Canada: operating a chain of similar stores in CanadaAgreement in June 1998
Golf Galaxy Golf Canada
develop and present an initial training program for Golf Canada employees
provide Golf Canada with blueprints, merchandising plans, sales reports, and other useful business documents
provide continued consulting services to Golf Canada
Giving shares and a seat on the company’s board of directors to Golf Galaxy
Cash payments to Golf Galaxy
Not to enter the United States market for a certain time period
Agreement in October 2004
Golf Galaxy Golf Canada
Prohibited from opening a store in Canada until June 2008
Not to operate any retail store in the United States until 2013
Not to engage in any businesses outside Canada that competes with, or is similar to, Golf Galaxy until 2010
Identify the type of anti-competitive behaviours
Market allocation/market division Meaning: Under an agreement of market allocation,
the competitors in a market form a cartel and agree to divide the market into territories.
Horizontal agreement - an agreement among competitors in the same market to restrict competition
Golf Galaxy and Golf Canada are competitors in the same golf market
Dividing the market into territories:Golf Galaxy - the US Golf Canada – Canada
Restricted competition market allocation.
Effects of market allocation
For the Golf Galaxy & Golf Canada:More promotions
Monopoly rights sell products in Canada and United States Capture all the benefits from product promotion
Less competition May become monopolists in Canada and United States price searcher raise price easily &earn monopoly profit
For golf merchandise industry
Less competitive no power in the market
Hard to enter the industry market is being monopolized Entry is restricted
For Consumers:
Unfair market is monopolized Less Choices More expensive
For Society:
Two companies set a higher price earn the monopoly profit capture some of the consumer surplus MB>MC Underproduction of output Deadweight loss TSS Inefficiency in resource allocation in society
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