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1 8 . Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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Page 1: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

18

.

Antitrust Policy and Regulation

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Page 2: 18. 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

Page 3: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 4: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

Antitrust Laws

•The purpose:

•Prevent monopoly

•Promote competition

•Achieve allocative efficiency

LO1 18-4

Page 5: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

32 - 5Copyright 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 LAWSHistorical Background•Trusts•P=MC Pricing•Monopoly Pricing•Regulatory Agencies

•Natural Monopolies

Page 6: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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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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

Page 7: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 8: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

32 - 8Copyright 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

Celler-Kefauver Act of 1950• Strengthened Clayton Act

Regarding Asset Ownership in

Competing Firms

• Anticompetitive Mergers Illegal

No Matter How Accomplished

Page 9: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

32 - 9Copyright 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 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

Page 10: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 11: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 12: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 13: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 14: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 15: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 16: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

Deregulation

• Began in the 1970s• Has produced large net benefits for

consumers and society• Industries deregulated include:

• Airlines• Railroads• Telecommunications• Electricity

LO3 18-16

Page 17: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

32 - 17Copyright 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

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

Page 18: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 19: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 20: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 21: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 22: 18. Antitrust Policy and Regulation McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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


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