Chapter 24

Antitrust Policy and Regulation

Antitrust• History

• Post Civil War “trusts” were formed (oil, railroads) to monopolize.• Regulatory agencies were formed for natural monopolies• Antitrust laws were passed for other markets

• Sherman Act (1890)• Contracts in restraint of trade• Price fixing• Monopolies

• Clayton Act (1914)• Price discrimination• Tying contracts• Acquisition of stock of competing firms• Interlocking directorates• Exclusive dealing

• Federal Trade Commission Act (1914)• Created the FTC

• Robinson - Patman Act (1936)• Protects small businesses

• Wheeler – Lea Act (1938)• False advertising

• Celler-Kefauver Act (1950)• Anti-merger act – merger by stock acquisition

Case Procedure• Terms

• Rule of Reason – not all monopolies are illegal if it was obtained naturally (U.S. Steel, 1920)• Per Se – if you meet the definition you are a monopoly no matter how you got there (ALCOA,

1945)• Consent decree – I didn’t do it and I won’t do it again• Treble Damages – 3 times the amount asked

• Typical Case• Identify the type of merger

• Vertical – suppliers• Horizontal – competitors• Conglomerate – unrelated

• Identify the relevant market• Broad – Restaurants• Medium – Fast Food Restaurants• Narrow – Hamburger Fast Food Restaurants

• Calculate the Concentration measures• Concentration Ratio

• 0 – perfect competition• 1 – 50 monopolistic competition• 50 – 99 oligopoly• 100 – monopoly

• Pre-merger Herfindahl Index• Post-merger Herfindahl Index

• What is the market structure?• What should you do?

• Challenge if the Post-merger HI is above 1800 and the increase is 100+

Industrial Regulation

• Natural Monopoly – Public Utilities such as cable, water, sewage, electricity, gas, and local telephone

• Alternatives• Public ownership

• Public regulation

• Price

• Marginal cost pricing

• Average cost pricing

• Profit

• Output

Social Regulation

• Concerned with• Conditions of production (worker safety)

• Impact on society (environment)

• Products themselves (Food and medicine)