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micro economics chapter 19

19
Antitrust Policy and Regulation

McGraw-Hill/Irwin

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


Antitrust Laws

• The purpose:
• Prevent monopoly
• Promote competition
• Achieve allocative efficiency
• Historical background
• Regulatory agencies
• Antitrust laws
LO1



Antitrust Laws

• Sherman Act 1890
• Made restraint of trade and
monopolization illegal
• Injured firms can sue for treble
damages
• Department of Justice or injured
firms can initiate suits

LO1


Antitrust Laws

• Clayton Act 1914 – Illegal if
competition is reduced
• Outlaw price discrimination
• Prohibit tying contracts
• Prohibit stock acquisition
• No interlocking directorates

LO1


Antitrust Laws

• Federal Trade Commission Act 1914
• Power to investigate unfair
business practices of firms
• Cease and desist orders
• Wheeler-Lea Act 1938
• Made fraudulent advertising
illegal
• FTC investigates fraudulent
advertising
LO1



Antitrust Laws

• Celler-Kefauver Act 1950
• Made all mergers illegal if
competition is significantly reduced

LO1


Antitrust Policy

• Issues of interpretation
• Monopoly behavior or structure
• 1911 Standard Oil Case
• 1920 U.S. Steel Case
• Rule of reason
• 1945 Alcoa Case
• The relevant market
• 90-60-30 rule

• 1956 DuPont Cellophane Case

LO2

• Issues of enforcement


Antitrust Policy

• Issues of enforcement

• Active antitrust perspective
• Laissez-faire perspective

LO2


Effectiveness of Antitrust Laws

• Monopoly
• AT&T
• Microsoft Case
• Mergers
• Horizontal merger
• Vertical merger
• Conglomerate merger
LO2


Mergers

• Price fixing
• Per se violation

• Price discrimination
• Tying contracts

LO2


Industrial Regulation

• Natural monopolies
• Economies of scale
• Public interest theory of regulation

• When it’s beneficial to have a single firm
price and output must be regulated by
government to prevent abuse of power

LO3


Problems with Industrial
Regulation

• Costs and inefficiency
• No incentive to reduce cost
• X-inefficiency
• Perpetuate monopoly
• Legal Cartel Theory
• Regulating potentially competitive
industries
• Firms desire regulation
LO3


Deregulation

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


LO3

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


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


Social Regulation

LO4


Social Regulation

• Optimal level of social regulation
• In support of social regulation
• Criticisms of social regulation

• High costs, higher prices
• Uneconomical goals MBpersonnel
• Inadequate information
• Unintended side effects
• Slower innovation
• Reduced competition

LO4



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