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