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macroeconomic mcgrowhill micro ch 18 19e use this one

18
Antitrust Policy and Regulation

McGraw-Hill/Irwin

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

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Chapter Objectives

Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation
Key Terms


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• The Core Elements of the Major
Antitrust (Antimonopoly) Laws in the
United States
• Some of the Key Issues Relating to the
Interpretation and Application of
Antitrust Laws
• The Economic Principles and
Difficulties Related to the Setting of
Prices (Rates) Charged by So-Called
“Natural Monopolies”
• The Nature of “Social Regulation,” Its
Benefits and Costs, and Its Optimal
Level
Copyright McGraw-Hill/Irwin, 2002


Antitrust Policy
and Regulation

ANTITRUST POLICY
AND
REGULATION
Antitrust Policy

The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation



Industrial Regulation

Key Terms

Social Regulation
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Copyright McGraw-Hill/Irwin, 2002


Antitrust Laws

• The purpose:
•Prevent monopoly
•Promote competition
•Achieve allocative
efficiency
LO1

18-4


THE ANTITRUST LAWS

Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation
Key Terms

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Historical Background
•Trusts
•P=MC Pricing
•Monopoly Pricing
•Regulatory Agencies
•Natural Monopolies
Copyright McGraw-Hill/Irwin, 2002


THE ANTITRUST LAWS
Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation
Key Terms

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Sherman Act of 1890
• Section 1 - Restraint of Trade
• Section 2 – Monopolization
• Treble Damages

Clayton Act of 1914





Section 2 - Price Discrimination
Section 3 - Tying Contracts
Section 7 – Stock Ownership
Section 8 – Interlocking
Directorates

Copyright McGraw-Hill/Irwin, 2002


THE ANTITRUST LAWS

Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation

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• Established FTC
• Holds Hearings on Complaints
• Seeks Cease-and-Desist Orders

Wheeler-Lea Act of 1938

Key Terms

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Federal Trade Commission
Act of 1914

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• Policing Deceptive Practices
• False Advertising
• Misleading Representation of
Products
Copyright McGraw-Hill/Irwin, 2002


THE ANTITRUST LAWS
Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation
Key Terms

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Celler-Kefauver Act of 1950
• Strengthened Clayton Act
Regarding Asset Ownership in
Competing Firms
• Anticompetitive Mergers Illegal
No Matter How Accomplished

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Copyright McGraw-Hill/Irwin, 2002


THE ANTITRUST LAWS
Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation
Key Terms

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Issues of Interpretation
• Monopoly Behavior vs. Structure
• Standard Oil Case – 1911
• U.S. Steel Case – 1920
•Rule of Reason
• Alcoa Case - 1945
• Du Pont Cellophane Case
Issues of Enforcement: Tradeoffs
Among Goals
• Balance of Trade
• Defense Cutbacks
• Emerging New Technologies
Copyright McGraw-Hill/Irwin, 2002


Antitrust Policy

• Issues of interpretation
• Monopoly behavior or structure
• 1911 Standard Oil Case
• 1920 U.S. Steel Case
• 1945 Alcoa Case
• The relevant market
• 1956 DuPont Cellophane Case
• Issues of enforcement
LO2

18-10


THE ANTITRUST LAWS

Effectiveness of Antitrust
Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation
Key Terms

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• Existing Market Structures
• Mergers
•Merger Types
•Horizontal Merger
•Vertical Merger
•Conglomerate Merger
• Merger Guidelines
•Herfindahl Index
• Price Fixing – Per se Violations
• Tying Contracts
Copyright McGraw-Hill/Irwin, 2002


Types of Mergers
Antitrust Policy
and Regulation

Automobiles

The Antitrust La
ws

Blue Jeans

Conglomerate Merger

Types of Mergers Autos
Industrial Regula
tion

A

B

C

D

E

F

Blue
Jeans

Social Regulation
Key Terms

Glass
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T

U

V

W X Y Z

Denim
Fabric

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Horizontal Merger
Copyright McGraw-Hill/Irwin, 2002

Vertical Merger
18-12


Industrial Regulation

• Natural monopolies
• Economies of scale
• Public utilities
• Electricity, water, gas, phone
• Solutions for better outcomes
• Public ownership
• Public regulation
• Public interest theory of regulation
LO3

18-13


Industrial Regulation
Commission
(Year Established)

Jurisdiction

Federal Energy Regulatory
Commission (1930)*

Electricity, gas, gas pipelines, oil
pipelines, water-powered sites

Federal Communications
Commission (1934)

Telephones, television, cable
television, radio, telegraph, CB
radios, ham operators

State public utility
commissions (various years)

Electricity, gas telephones

*Originally called the Federal Power Commission, renamed in 1977
LO3

18-14


Problems with Industrial
Regulation

• Regulators establish rates to give




LO3

natural monopoly “fair return”
No incentive to reduce cost
X-inefficiency
Perpetuate monopoly
• Conditions of natural monopoly can
end
Legal Cartel Theory
18-15


Deregulation

• Began in the 1970s
• Has produced large net benefits for


LO3

consumers and society
Industries deregulated include:
• Airlines
• Railroads
• Telecommunications
• Electricity

18-16


SOCIAL REGULATION
Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation
Key Terms

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Applies to Far More Firms
More Intrusive into Daily
Activities
•Food & Drugs (1906)
•EEOC (1964)
•OSHA (1971)
•EPA (1972)
•CPSC (1972)

Optimal Level of Social
Regulation
Copyright McGraw-Hill/Irwin, 2002


Social Regulation

• Concerned with the conditions under




LO4

which goods and services are
produced
Impact of production on society
Physical qualities of goods
Applied “across the board” to all
industries

18-18


Social Regulation

LO4

Commission
(Year Established)

Jurisdiction

Food and Drug Administration
(1906)

Safety and effectiveness of food,
drugs, and cosmetics

Equal Employment Opportunity
Commission (1964)

Hiring, promotion, and discharge
of workers

Occupational Safety and Health
Administration (1972)

Industrial health and safety

Environment Protection Agency
(1972)

Air, water, and noise pollution

Consumer Product Safety
Commission (1972)

Safety of consumer products

18-19


Social Regulation
Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation
Key Terms

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• Optimal Level of Social
Regulation (MB = MC)
– In Support of Social Regulation
– Criticisms of Social Regulation
– Two Reminders
• There is No Free Lunch!
• Less Government is Not Always
Better than More
Copyright McGraw-Hill/Irwin, 2002


Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation
Key Terms

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United States v.
Microsoft

• Charges May 1998
• Windows Monopoly
• District Court Findings
– 95% of Intel PCs
– Restrictive Contracts
– District Court Remedy

• Appeals Court Ruling
• Final Settlement
– No Break Up
Copyright McGraw-Hill/Irwin, 2002


Key Terms
Antitrust Policy
and Regulation
The Antitrust La
ws
Types of Mergers
Industrial Regula
tion
Social Regulation
Key Terms

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• antitrust policy
• industrial regulation



U.S. Steel case



rule of reason

• social regulation
• Sherman Act



Alcoa case



DuPont cellophane case

• Clayton Act
• tying contracts



Microsoft case



horizontal merger

• interlocking directorates
• Federal Trade Commission A
ct
• cease-and-desist order
• Wheeler-Lea Act



vertical merger



conglomerate merger



per se violations



natural monopoly



public interest theory of
regulation



legal cartel theory of
regulation

• Celler - Kefauver Act
• Standard Oil case

Copyright McGraw-Hill/Irwin, 2002



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