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 Canada Agreement in June 1998 Golf Galaxy Golf Canada develop and present an initial Giving shares and a seat on training program for Golf the company’s board of Canada employees directors to Golf Galaxy provide Golf Canada with Cash payments to Golf Galaxy blueprints, merchandising Not to enter the United States plans, sales reports, and other market for a certain time useful business documents period provide continued consulting services to Golf Canada 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