19 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.. Antitrust Policy and Regulation.

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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

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 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

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 MB<MC, overzealous personnel

• Inadequate information

• Unintended side effects

• Slower innovation

• Reduced competitionLO4