18. antitrust policy and regulation mcgraw-hill/irwin copyright © 2012 by the mcgraw-hill...
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18
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Antitrust Policy and Regulation
McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
32 - 2Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
PreviousSlide
NextSlide
EndShow
Chapter Objectives• The Core Elements of the Major
Antitrust (Antimonopoly) Laws in the United States
• Some of the Key Issues Relating to the Interpretation and Application of Antitrust Laws
• The Economic Principles and Difficulties Related to the Setting of Prices (Rates) Charged by So-Called “Natural Monopolies”
• The Nature of “Social Regulation,” Its Benefits and Costs, and Its Optimal Level
32 - 3Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
PreviousSlide
NextSlide
EndShow
ANTITRUST POLICYAND REGULATION
Antitrust Policy
Industrial Regulation
Social Regulation
Antitrust Laws
•The purpose:
•Prevent monopoly
•Promote competition
•Achieve allocative efficiency
LO1 18-4
32 - 5Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
PreviousSlide
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EndShow
THE ANTITRUST LAWSHistorical Background•Trusts•P=MC Pricing•Monopoly Pricing•Regulatory Agencies
•Natural Monopolies
32 - 6Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
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EndShow
THE ANTITRUST LAWSSherman Act of 1890• Section 1 - Restraint of Trade• Section 2 – Monopolization• Treble Damages
Clayton Act of 1914• Section 2 - Price Discrimination• Section 3 - Tying Contracts• Section 7 – Stock Ownership• Section 8 – Interlocking
Directorates
32 - 7Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
PreviousSlide
NextSlide
EndShow
THE ANTITRUST LAWSFederal Trade Commission
Act of 1914• Established FTC• Holds Hearings on Complaints• Seeks Cease-and-Desist Orders
Wheeler-Lea Act of 1938• Policing Deceptive Practices• False Advertising• Misleading Representation of
Products
32 - 8Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
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EndShow
THE ANTITRUST LAWS
Celler-Kefauver Act of 1950• Strengthened Clayton Act
Regarding Asset Ownership in
Competing Firms
• Anticompetitive Mergers Illegal
No Matter How Accomplished
32 - 9Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
PreviousSlide
NextSlide
EndShow
THE ANTITRUST LAWS
Issues of Interpretation• Monopoly Behavior vs. Structure• Standard Oil Case – 1911• U.S. Steel Case – 1920
•Rule of Reason• Alcoa Case - 1945 • Du Pont Cellophane CaseIssues of Enforcement: Tradeoffs
Among Goals• Balance of Trade• Defense Cutbacks• Emerging New Technologies
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
LO2 18-10
32 - 11Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
PreviousSlide
NextSlide
EndShow
THE ANTITRUST LAWSEffectiveness of Antitrust• Existing Market Structures• Mergers
•Merger Types•Horizontal Merger•Vertical Merger•Conglomerate Merger
• Merger Guidelines•Herfindahl Index
• Price Fixing – Per se Violations• Tying Contracts
32 - 12Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
PreviousSlide
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EndShow
Types of Mergers
Automobiles Blue Jeans
Autos
Glass
BlueJeans
DenimFabric
A CB D E F
ZYXWVUT
Horizontal Merger
Conglomerate Merger
Vertical Merger
18-12
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
LO3 18-13
Industrial Regulation
LO3
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
18-14
Problems with Industrial Regulation
• Regulators establish rates to give natural monopoly “fair return”
• No incentive to reduce cost
• X-inefficiency
• Perpetuate monopoly
• Conditions of natural monopoly can end
• Legal Cartel Theory
LO3 18-15
Deregulation
• Began in the 1970s• Has produced large net benefits for
consumers and society• Industries deregulated include:
• Airlines• Railroads• Telecommunications• Electricity
LO3 18-16
32 - 17Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
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EndShow
SOCIAL REGULATIONApplies to Far More FirmsMore Intrusive into Daily Activities•Food & Drugs (1906)•EEOC (1964)•OSHA (1971)•EPA (1972)•CPSC (1972)
Optimal Level of Social Regulation
Social Regulation
• 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
LO4 18-18
Social Regulation
Commission
(Year Established) JurisdictionFood 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
LO4 18-19
32 - 20Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
PreviousSlide
NextSlide
EndShow
Social Regulation• Optimal Level of Social
Regulation (MB = MC)– In Support of Social Regulation– Criticisms of Social Regulation– Two Reminders
• There is No Free Lunch!• Less Government is Not Always
Better than More
32 - 21Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
PreviousSlide
NextSlide
EndShow
United States v. Microsoft• Charges May 1998
• Windows Monopoly• District Court Findings
– 95% of Intel PCs– Restrictive Contracts– District Court Remedy
• Appeals Court Ruling• Final Settlement
– No Break Up
32 - 22Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy and Regulation
The Antitrust Laws
Types of Mergers
Industrial Regulation
Social Regulation
Key Terms
PreviousSlide
NextSlide
EndShow
Key Terms• antitrust policy
• industrial regulation
• social regulation
• Sherman Act
• Clayton Act
• tying contracts
• interlocking directorates
• Federal Trade Commission Act
• cease-and-desist order
• Wheeler-Lea Act
• Celler - Kefauver Act
• Standard Oil case
• U.S. Steel case
• rule of reason
• Alcoa case
• DuPont cellophane case
• Microsoft case
• horizontal merger
• vertical merger
• conglomerate merger
• per se violations
• natural monopoly
• public interest theory of regulation
• legal cartel theory of regulation