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ECON 1123 Edition 1st Lecture 20 Outline From Previous Lecture Lecture 19 I Price Discrimination II Regulating the Natural Monopolist III How do you tell monopoly power Outline Lecture 20 I Antitrust Policy II Measuring the Extent of monopoly power III Contestable Markets IV Monopolistic Competition Lecture 20 Notes I Antitrust Policy Antitrust Policy laws designed with intention to maintain competition and prevent monopolies from developing Examples Sherman Anti Trust Act 1890 conspiracies in the restraint of trade and attempt to monopolize are illegal Clayton Act 1914 Makes price discrimination illegal IF it lessens competition Federal Trade Commission Act 1914 Unfair or deceptive commercial practices are illegal II Measuring the Extent of monopoly power Stigler All products or enterprises with large long run elasticities of demand should be combined in a single market Cross elasticity of demand change in Qdemanded of X change in Price Y You look at the relationship between these and if they are both increasing then they are substitues Herfendal Hirschman Index Way of measuring industrial concentration equal to the sum of the squares of market shares of all firms in the industry HHI S1 2 S2 2 SN 2 These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute Where S1 S2 SN percentage market share total industry sales of each firm in the industry This takes away the errors that you can get using only concentration ratio HHI ranges from approximately 0 a very large number of firms with very small market shares like pure competition to 10 000 which would be pure monopoly 1992 FTC Guidelines If HHI 1 000 unconcentrated 1000 HHI 1800 moderately concentrated HHI 1800 Highly concentrated Mergers resulting in HHI 1000 approved Mergers resulting in HHI 1000 HHI 1800 closely evaluated Criteria for evaluation if HHI rises by 100 points them typically its disapproved Mergers resulting