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