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 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