Economics Chapter 7 section 3 Antitrust Economic Regulation

Economics Chapter 7 section 3 Antitrust, Economic Regulation, and Competition • Antitrust activity – Government efforts aimed at preventing monopoly and promoting competition in markets where competition is desirable. • U. S. Antitrust Activity • 1. Promote the market structure that will lead to greater competition, and • 2. Reduce anticompetitive behavior.

Antitrust laws • Antitrust laws attempt to promote socially desirable market performance. • Sherman Antitrust Act of 1890 outlawed the creation of trusts, restraint trade, and monopolization. • A trust is any firm or group of firms that tries to monopolize a market.

The Clayton Act of 1914 • Law was passed to outlaw certain practices not prohibited by the Sherman Act and to help government stop a monopoly before it developed.

The Federal Trade Commission (FTC) Act of 1914 • Established a federal body to help enforce antitrust laws. • FTC has five full-time commissioners assisted by a staff of mostly economists and lawyers.

Merger and Antitrust • Way to reduce competition • A merger is the combination of two or more firms to form a single firm. • Federal antitrust officials approve or deny proposed mergers • Officials consider the merger’s impact on the share of sales by the largest firms in the industry.

Continued • Few firms account for a relatively large share of sales in the market (more than ½) any merger increases share may be challenged.

Federal guidelines • Horizontal mergers-involve firms in the same market, such as a merger between competing oil companies. • Nonhorizontal merger-include all other types of mergers. Hold greater interest for antitrust officials.

Flexible Merger Policy • A merger of american companies to compete against foreign competition. • E. I. airlines

Two Views of Government Regulations Public Interest • Regulation promotes social welfare by reducing the price and increasing the output when a market is served most efficiently by one or just a few firms. • Special Interest- well-organized producer groups expect to profit from government regulation by persuading public officials to impose restrictions that these groups attract.

Deregulations • A reduction in government control over prices and firms entry in previously regulated markets, such as airlines and trucking. • Ex. airlines