Antitrust Policy and Regulation
Antitrust Policy and Regulation
Antitrust Policy and Regulation
Market Power
The ability of a firm to raise its price without losing all its customers to rival firms Any firms facing a downward sloping demand curve has some control over the price and thus some market power
Government Policies
Social regulation
Government
and safety
Economic regulation
Government
regulation of natural monopoly where because of economies of scale, average production cost is lowest when a single firm supplies the market.
Antitrust
The purpose of antitrust policy is to prevent monopolization, promote competition, and achieve allocative efficiency. Pursed in courts
History
Government Involvement
agencies
Antitrust
laws
Social control took the form of antitrust legislation designed to inhibit or prevent the growth of monopoly
developments in the 19th century created bigger firms serving wider markets Two most important developments
Technological breakthroughs that led to a larger optimal plant size in manufacturing The rise of the railroad which reduced transport costs
Economies
of scale and cheaper transport costs extended the geographical size of markets, so firms grew larger and served a wider geographical market
Section 1
Every
contract, combination in the form of a trust or otherwise, or conspiracy in RESTRAINT OF TRADE or commerce among the several states, or with foreign nations is hereby declared to be illegal
Section 2: every person who shall monopolize, or attempt to monopolize, or combine or conspire with any person or persons, to monopolize any part of the trade or commerce among the several states or with foreign nations, shall be deemed guilty of a felony
Restraint of trade
Collusive
Injured private parties or state attorney generals can file antitrust suits against alleged violators of the act Treble damages
Contained the desired elaboration of the Sherman Act. Section 2: outlaws price discrimination
when such discrimination is not justified on the basis of cost differences and when it reduces competition
a producer requires that a buyer purchases another of its products as a condition for obtaining a desired product. Also exclusive dealings
where a director of one firm is also a board member of a competing firm in large corporations where the effect would be reduced competition
FTC Act
Created
the five member FTC which has joint Federal responsibility with the Justice Dept for enforcing the antitrust laws. Power to investigate unfair competitive practices on its own initiative or at the request of injured firms Public hearings, cease and desist orders
Gave FTC the additional responsibility of policing deceptive acts or practices in commerce
Established FTC as an independent antitrust agency Made unfair and deceptive sales practices illegal
Amended the Clayton Act which prohibits a firm from merging with a competing firm by acquiring its stock to prohibit the purchase of physical assets
Prevents
Antitrust Policy
The effectiveness of any law depends on how the courts interpret it and on the vigor of the government enforcement. Courts have been inconsistent in interpreting the antitrust laws
Issues of Interpretation
Monopoly power vs. Monopoly structure Court Cases
Standard
Oil (1911)
Guilty of monopolizing the petroleum industry through a series of abusive and anticompetitive actions Court divided Standard Oil into competing firms
Issues of Interpretation
Court cases
US
Alcoa
case (1945)
20 year turnabout Even though the firms behavior might be legal, the mere possession of monopoly power violated the antitrust laws.
Issues of Interpretation
Structuralists
Say
that a firm with a very high market share will behave like a monopolist. that the relationship between structure, behavior, and performance is tenuous and unclear.
Behavioralists
Assert
Mergers
Vertical Merger A merger between firms at different stages of the production process
Conglomerate merger Any merger that is not horizontal or vertical Different industries
Horizontal Merger
Is a merger between two competitors that sell similar products in the same geographic market
Vertical Merger
Conglomerate merger
Different industries