Chapter 19 Antitrust Policy and Regulation Antitrust Laws

Chapter 19 Antitrust Policy and Regulation

Antitrust Laws • • LO 1 The purpose: • Prevent monopolization • Promote competition • Achieve allocative efficiency Historical background • Regulatory agencies • Antitrust laws 19 -2

Antitrust Laws • • LO 1 Sherman Act 1890 Clayton Act 1914 • Outlaws price discrimination • Prohibits tying contracts • Prohibits stock acquisition • No interlocking directorates Federal Trade Commission Act 1914 • Wheeler-Lea Act 1938 Celler-Kefauver Act 1950 19 -3

Antitrust Policy: Issues and Impacts • • LO 2 Issues of interpretation Monopoly behavior vs. Monopoly structure • 1911 Standard Oil Case • 1920 U. S. Steel Case • 1945 Alcoa Case Relevant market • 1956 Du. Pont Cellophane Case Issues of enforcement 19 -4

Effectiveness of Antitrust Laws • • LO 2 Monopoly • AT&T • Microsoft Case Mergers • Horizontal merger • Vertical merger • Conglomerate merger 19 -5

Mergers • • LO 2 Merger guidelines • The Herfindahl Index Price fixing Price discrimination Tying contracts 19 -6

Industrial Regulation • • LO 3 Natural monopoly Economies of scale Public utilities • Electricity, water, gas, phone Solutions for better outcomes • Public ownership • Public regulation • Public interest theory of regulation 19 -7

Problems with Industrial Regulation • • • LO 3 Regulators establish rates to give natural monopoly “fair return” No incentive to reduce cost X-inefficiency Perpetuating Monopoly • Conditions of natural monopoly can end Legal Cartel Theory of Regulation 19 -8

Deregulation • • • LO 3 Began in the 1970 s Has produced large net benefits for consumers and society Industries deregulated include: • Airlines • Railroads • Telecommunications • Electricity 19 -9

Social Regulation • • LO 4 Concerned with the conditions under which goods and services are produced Impact of production on society Physical qualities of goods Applied “across the board” to all industries 19 -10

Social Regulation • • LO 4 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 19 -11

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 19 -12