Transcript Antitrust Laws

18
Antitrust Policy and Regulation
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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Antitrust Laws
• The purpose:
• Prevent monopoly
• Promote competition
• Achieve allocative efficiency
• Historical background
• Regulatory agencies
• Antitrust laws
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Antitrust Laws
• Sherman Act 1890
• Clayton Act 1914
• Outlaw price discrimination
• Prohibit tying contracts
• Prohibit stock acquisition
• No interlocking directorates
• Federal Trade Commission Act 1914
• Wheeler-Lea Act 1938
• Celler-Kefauver Act 1950
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Antitrust Policy
• Issues of interpretation
• Monopoly behavior or structure
• 1911 Standard Oil Case
• 1920 U.S. Steel Case
• 1945 Alcoa Case
• The relevant market
• 1956 DuPont Cellophane Case
• Issues of enforcement
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Effectiveness of Antitrust Laws
• Monopoly
• AT&T
• Microsoft Case
• Mergers
• Horizontal merger
• Vertical merger
• Conglomerate merger
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Mergers
Automobiles
Blue Jeans
Conglomerate Merger
Blue
Jeans
Autos
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B
U
C
V
Glass
Horizontal Merger
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D
E
F
W X Y Z
Denim
Fabric
Vertical Merger
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Mergers
• Merger guidelines
• The Herfindahl Index
• Price fixing
• Price discrimination
• Tying contracts
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Industrial Regulation
• Natural monopolies
• Economies of scale
• Public utilities
• Electricity, water, gas, phone
• Solutions for better outcomes
• Public ownership
• Public regulation
• Public interest theory of regulation
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Industrial Regulation
Commission
(Year Established)
Jurisdiction
Federal Energy Regulatory
Commission (1930)*
Electricity, gas, gas pipelines, oil
pipelines, water-powered sites
Federal Communications
Commission (1934)
Telephones, television, cable
television, radio, telegraph, CB
radios, ham operators
State public utility
commissions (various years)
Electricity, gas telephones
*Originally called the Federal Power Commission, renamed in 1977
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Problems with Industrial Regulation
• Regulators establish rates to give
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natural monopoly “fair return”
No incentive to reduce cost
X-inefficiency
Perpetuate monopoly
• Conditions of natural monopoly can
end
Legal Cartel Theory
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Deregulation
• Began in the 1970s
• Has produced large net benefits for
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consumers and society
Industries deregulated include:
• Airlines
• Railroads
• Telecommunications
• Electricity
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Social Regulation
• Concerned with the conditions under
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which goods and services are
produced
Impact of production on society
Physical qualities of goods
Applied “across the board” to all
industries
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Social Regulation
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Commission
(Year Established)
Jurisdiction
Food and Drug Administration
(1906)
Safety and effectiveness of food,
drugs, and cosmetics
Equal Employment Opportunity
Commission (1964)
Hiring, promotion, and discharge
of workers
Occupational Safety and Health
Administration (1972)
Industrial health and safety
Environment Protection Agency
(1972)
Air, water, and noise pollution
Consumer Product Safety
Commission (1972)
Safety of consumer products
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Social Regulation
• Optimal level of social regulation
• In support of social regulation
• Criticisms of social regulation
• Two reminders
• There is no free lunch
• Less government is not always
better than more
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United States vs. Microsoft
Charged in May 1998 under the
Sherman Act
Accused of having a “Windows”
monopoly
District court findings:
• Used anticompetitive means
District court remedy
Appeals court ruling
Final settlement
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