antitrust policy & regulation if the slide has a green background: you are responsible for...

Antitrust Policy & Antitrust Policy & RegulationRegulation

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What’s the Problem with Market What’s the Problem with Market Power? Power?

Tend to produce less Tend to produce less Charge higher pricesCharge higher prices Less incentive to provide quality for Less incentive to provide quality for

the consumer the consumer If the consumer is unhappy, they If the consumer is unhappy, they

can….? can….?

TrustsTrustsDEF: A DEF: A combination of combination of firms or firms or corporations corporations formed by a legal formed by a legal agreementagreement Especially in Especially in order to reduce order to reduce competitioncompetition Standard Trust Standard Trust – came after – came after Standard OilStandard Oil

ANTI-TRUST LAWS ANTI-TRUST LAWS

Stated another way…(Anti-Stated another way…(Anti-monopoly )laws monopoly )laws

Prevent one company from gaining Prevent one company from gaining too much powertoo much power

Sherman Antitrust ActSherman Antitrust Act

1890 – used in early 1890 – used in early 1900’s1900’s

First government law First government law to limit monopoliesto limit monopolies

Gave federal gov’t Gave federal gov’t power to investigate power to investigate trusts and companies trusts and companies suspected of violating suspected of violating the Actthe Act

““Antitrust” really Antitrust” really means “competition means “competition law”law”

Outlaws Outlaws monopoliesmonopolies

Clayton Antitrust ActClayton Antitrust Act

19141914 Strengthened Sherman Strengthened Sherman

ActAct Prohibit Prohibit

“anticompetitive “anticompetitive practices”practices”– Mergers/Acquisitions Mergers/Acquisitions

that lessen competitionthat lessen competition– One person being a One person being a

director of competing director of competing companiescompanies

B.B. CasesCases

1.1. Standard Oil case (1911) – broke-Standard Oil case (1911) – broke-up.up.

2.2. U.S. Steel case (1920) – ‘rule of U.S. Steel case (1920) – ‘rule of reason’ by Supreme reason’ by Supreme

Court that Court that unreasonably unreasonably restrain trade.restrain trade.

John D. Rockefellercontrolled nearly alltrade for oil and gas.The Supreme Courtused the Sherman Act to break up Standard Oil into 34 companies.

In an out-of-In an out-of-court settlement, court settlement, AT&T divested AT&T divested itself into 22 itself into 22 regional phone-regional phone-operating operating companies in companies in 1982.1982.

Other cases…Other cases…

Microsoft Case in US Microsoft Case in US

http://www.wired.com/techbiz/it/news/http://www.wired.com/techbiz/it/news/2002/11/35212 -case timeline2002/11/35212 -case timeline

Microsoft has spent 21 years — more Microsoft has spent 21 years — more than half its lifetime — fighting antitrust than half its lifetime — fighting antitrust battles with the U.S. government. It has battles with the U.S. government. It has earned a page in the history books, earned a page in the history books, waging one of the biggest monopoly waging one of the biggest monopoly wars in this country.wars in this country.

The company barely escaped being The company barely escaped being split up after it was ruled an unlawful split up after it was ruled an unlawful monopolist in 2000 for using its monopolist in 2000 for using its stranglehold on the PC market with stranglehold on the PC market with its Windows operating system to its Windows operating system to cripple competitors, such as cripple competitors, such as Netscape's Navigator Web browser.Netscape's Navigator Web browser.

A court settlement approved in 2002 A court settlement approved in 2002 and a consent decree curbing some and a consent decree curbing some of its practices saved Microsoftof its practices saved Microsoft

Countries with Antitrust Laws Countries with Antitrust Laws shown in redshown in red

MergersMergers

The combining of two or more The combining of two or more companies, generally by offering the companies, generally by offering the stockholders of one company stockholders of one company securities in the acquiring company securities in the acquiring company in exchange for the surrender of their in exchange for the surrender of their stock. stock.

Basically, when two companies Basically, when two companies become one. This decision is usually become one. This decision is usually mutual between both firms. mutual between both firms.

Acquisition Acquisition

A corporate action in which a A corporate action in which a company buys most, if not all, of the company buys most, if not all, of the target company's ownership stakes target company's ownership stakes in order to assume control of the in order to assume control of the target firm. target firm.

Acquisitions are often made as part Acquisitions are often made as part of a company's growth strategy of a company's growth strategy whereby it is more beneficial to take whereby it is more beneficial to take over an existing firm's operations over an existing firm's operations and niche compared to expanding on and niche compared to expanding on its own. its own.

Acquisitions are often paid in cash, Acquisitions are often paid in cash, the acquiring company's stock or a the acquiring company's stock or a combination of both. combination of both.

AT&T ended its effort to buy T-Mobile AT&T ended its effort to buy T-Mobile USA, acknowledging that it could not USA, acknowledging that it could not overcome stiff opposition by the overcome stiff opposition by the Obama administration to form the Obama administration to form the nation’s biggest cellphone service nation’s biggest cellphone service provider.provider.

-2011, Dec-2011, Dec

The decision to scrap the $39 billion The decision to scrap the $39 billion takeover — which would have been the takeover — which would have been the biggest deal of the year — is a major biggest deal of the year — is a major setback for AT&T, which had pinned its setback for AT&T, which had pinned its hopes for growth on the acquisition. The hopes for growth on the acquisition. The company wanted T-Mobile’s cellular company wanted T-Mobile’s cellular airwaves, or spectrum, to relieve its airwaves, or spectrum, to relieve its congested network and offer faster congested network and offer faster service for data-hungry devices like the service for data-hungry devices like the iPhone.iPhone.

And the deal’s end leaves T-Mobile, the And the deal’s end leaves T-Mobile, the weakest of the four national operators, with an weakest of the four national operators, with an uncertain future.uncertain future.

For the Obama administration, the collapse of For the Obama administration, the collapse of the deal is confirmation that it has the deal is confirmation that it has reinvigorated antitrust oversight that it said reinvigorated antitrust oversight that it said had become weak under its predecessor. The had become weak under its predecessor. The Justice Department took the aggressive step of Justice Department took the aggressive step of suing to block the deal in late August, while suing to block the deal in late August, while the Federal Communications Commission had the Federal Communications Commission had signaled its intent to fight the merger as wellsignaled its intent to fight the merger as well..

Govt. carefully monitors and decides Govt. carefully monitors and decides if mergers and acquisitions are legal if mergers and acquisitions are legal based on the Anti Trust Laws based on the Anti Trust Laws

Goal of the US Govt. Goal of the US Govt. Protect ConsumersProtect Consumers Ensure Free and Fair Competition Ensure Free and Fair Competition

How Do You Feel About Government Regulation in the US Economy?