Lecture and Textbook notes Ch 18 Antitrust antimonopoly policy s purpose is to prevent monopolization promote competition and achieve allocative efficiency Regulatory agencies governmentally established agency to control natural monopolies Antitrust laws designed to inhibit or prevent the growth of monopoly Sherman Act of 1890 o Outlawed restraints of trade like collusive price fixing and dividing up markets and monopolization Clayton Act of 1914 o Outlawed price discrimination when such discrimination is not justified o Prohibits tying contracts in which a producer requires that a buyer purchase another of its products as a condition for obtaining the desired product o Prohibits the acquisition of stocks of competing corporations when the outcome would mean less competition o Prohibits the formation of interlocking directorates situations when a director of one firm is also board member of a competing firm Federal Trade Commission Act o Created the five member Federal Trade Commission FTC which has the power to investigate unfair competitive practices appointed by president approved by congress Cease and desist orders Wheeler Lea Act of 1938 o Gave the FTC additional responsibility of policing Celler Kefauver Act of 1950 assets buildings equipment of another firm o Now it prohibits any anticompetitive mergers Issues of interpretation o Closed a loop hole in the Clayton Act by prohibiting one firm from obtaining the physical o Should the focus be on monopoly behavior or monopoly structure 1911 Standard Oil Case guilty of monopolizing the petroleum industry 1920 Steel Case Not guilty the company wasn t using abusive activities established a rule of reason saying that not every monopoly is illegal Alcoa Case of 1945 guilty Alcoa held 90 of aluminum ingot market o How broadly should markets be defined in antitrust cases 1956 DuPont Cellophane Case Microsoft case 90 60 30 Rule o Herfindahl index Mergers geographic market o Horizontal a merger between two competitors that sell similar products in the same o Vertical a merger between firms at different stages of the production cost o Conglomerate any merger that is not horizontal or vertical Per se violations Price discrimination rarely reduces competition Natural monopoly exits when economies of scale are so extensive that a single firm can supply the entire market at a lower unit cost than would a number of competing firms o Electricity gas water phone o Public ownership Postal service Amtrak Garbage collection o Public Regulation government commissions regulate prices Public interest theory of regulation regulation should always be done in the best interest of public Industrial regulation o No incentive to reduce cost o X inefficiency o Perpetuate monopoly Social Regulation o Food and drug administration 1906 o Applies across the board to all industries o Equal Employment Opportunity Commission 1964 gender or race o Occupational Safety and Health Administration 1971 OSHA o Environmental Protection Agency 1972 o Consumer Product Safety Commission 1972 o Optimal level of social regulation Costly There is no free lunch Less government is not always better than more o Legal cartel theory of regulation
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