Chapter 19. Antitrust Policy and Regulation

Antitrust Policy and RegulationChapter 19Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Antitrust LawsThe purpose:Prevent monopolizationPromote competitionAchieve allocative efficiencyHistorical backgroundRegulatory agenciesAntitrust lawsLO1LO1Antitrust LawsSherman Act 1890Clayton Act 1914Outlaws price discriminationProhibits tying contractsProhibits stock acquisitionNo interlocking directoratesFederal Trade Commission Act 1914Wheeler-Lea Act 1938Celler-Kefauver Act 1950LO1Antitrust Policy: Issues and ImpactsIssues of interpretationMonopoly behavior vs. Monopoly structure1911 Standard Oil Case1920 U.S. Steel Case1945 Alcoa CaseRelevant market1956 DuPont Cellophane CaseIssues of enforcementLO2Effectiveness of Antitrust LawsMonopolyAT&TMicrosoft CaseMergersHorizontal mergerVertical mergerConglomerate mergerLO2MergersMerger guidelinesThe Herfindahl IndexPrice fixingPrice discriminationTying contractsLO2Industrial RegulationNatural monopolyEconomies of scalePublic utilitiesElectricity, water, gas, phoneSolutions for better outcomesPublic ownershipPublic regulationPublic interest theory of regulationLO3Problems with Industrial RegulationRegulators establish rates to give natural monopoly “fair return”No incentive to reduce costX-inefficiencyPerpetuating MonopolyConditions of natural monopoly can endLegal Cartel Theory of RegulationLO3DeregulationBegan in the 1970sHas produced large net benefits for consumers and societyIndustries deregulated include:AirlinesRailroadsTelecommunicationsElectricityLO3Social RegulationConcerned with the conditions under which goods and services are producedImpact of production on societyPhysical qualities of goodsApplied “across the board” to all industriesLO4Social RegulationOptimal level of social regulationIn support of social regulationCriticisms of social regulationTwo remindersThere is no free lunchLess government is not always better than moreLO4United States vs. MicrosoftCharged in May 1998 under the Sherman ActAccused of having a “Windows” monopolyDistrict court findings:Used anticompetitive meansDistrict court remedyAppeals court rulingFinal settlement