19 mcgraw-hill/irwincopyright © 2012 by the mcgraw-hill companies, inc. all rights reserved.....
TRANSCRIPT
19
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved..
Antitrust Policy and Regulation
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• Issues of enforcement
LO2
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
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 regulationLO3
Deregulation
• Began in the 1970s• Has produced large net benefits for
consumers and society• Industries deregulated include:
• Airlines• Railroads• Telecommunications• Electricity
LO3
Social Regulation
• Concerned with the conditions under which goods and services are produced
• Impact of production on society• Physical qualities of goods• Applied “across the board” to all
industries
LO4