Matakuliah
Tahun
Versi
: J0434 / Ekonomi Managerial
: 01 September 2005
: revisi
Pertemuan < 24 >
Government Regulation
Chapter 17
Learning Outcomes
Pada akhir pertemuan ini, diharapkan mahasiswa
akan mampu :
menganalisis mengenai regulasi pemerintah,
bentuk organisasi dan rancangan mekanisme
(C4)
Outline Materi
• Antitrust
• Regulatory Constraints
An Economic Analysis
• The Deregulation Movement
• Government Support to Business
• Solutions to Externalities
Government Regulation of
Market Conduct and Structure
Antitrust:
• In trusts, the voting rights to the several
firms are conveyed to a legal trust to
manage the group of firms as if it were one
firm. This tends to create monopolization
of an industry.
• The Sherman Antitrust Act (1890)
outlawed monopolies per se and
attempted monopolization.
The Clayton Act
The Clayton Act (1914) extended the list
of conduct that was anti-competitive:
a. price discrimination.
b. tying contracts force customers to buy
added products with one product.
c. purchasing shares of competing firms as
an anti-merger section.
d. corporate directorship interlocks occur
when the same people are in
directorships of competing firms.
• The Federal Trade Commission was established in
1914 to prohibit unfair methods of competition.
• The Celler-Kefauver Antimerger Act (1950) restricted
mergers through asset acquisition when the acquisition
"may be substantially to lessen competition."
• The Hart-Scott-Rodino Antitrust Improvement Act
(1976) requires notification by large firms to the Justice
Department of impending mergers.
• The Robinson-Patman Act of 1936 amended section 2
of the Clayton Act on price discrimination when it injures
competition.
Robinson-Patman Act of 1936
Section 2(a) prohibits price discrimination which
"substantially lessen competition".
Section (2b) provides a cost justification for price
discrimination.
Section (2c) prohibits some kinds of brokerage
commissions.
Sections (2d-2e) prohibits discounts to buyers not
afforded to other customers.
These sections are the basic laws against price
discrimination.
Regulatory Constraints
An Economic Analysis
Operating controls appear in environmental
pollution and product quality and safety issues.
The government, mandates that automobile manufacturers
must sell cars with seat-belts and must attain certain
emissions standards for their fleet.
EXAMPLES: DuPont forced to reduce emissions of
chlorofluorocarbons (CFCs), or Palladium Metal-Casting
– Adding an additional fixed cost (to reduce
smoke) lowers profit without changing the price.
– If the operating controls raise variable costs, the
output and price changes in the directions you
would expect: higher prices and lower output.
The Deregulation Movement
• Airline and trucking have been
deregulated.
• They are no longer "infant industries."
• Deregulation of long-distance occurred
due in large part to technological
changes in transmitting phone
messages by microwave.
Government Support to Business
• Governments historically have
helped some companies by
restricting or eliminating
competition.
• Examples
– Licensing of professions (or businesses)
– Patents of ideas or processes restricts
use of the idea
– Restrictions on price competition
Other Governmental Regulations
• Import Quotas and Import Tariffs
• Government Subsidies
• Government Promotion occurs when
the government spends money on
research & development or on the
benefits of particular life styles or
practices.
• Tax as a Regulatory Tool.
Economic Externalities and Market Failure
Types of Externalities
• Production Externalities:
– External Production Economies  expansion generates
benefits to other firms.
– External Production Diseconomies  expansion generates
uncompensated costs on other firms.
• Consumption Externalities:
– External Consumption Economies  an increase in use of this
product increases the utility of others.
– External Consumption Diseconomies  an increase in use
results in uncompensated costs on others.
The Coase Theorem
The Coase Theorem: if the transaction costs
for private contracting between parties are
very low, the problems of externalities will
be resolved without governmental
intervention.
Even if governments and the courts can
assign property rights or duties however
they wish, the solution is unaffected when
transaction costs are low.
More on the Coase Theorem
• Cattle Ranchers
– Suppose a fence
costs $500,000
– Suppose damage to
corn is $100,000 by
cattle
– What should
happen?
• Corn Farmers
– Suppose a fence
costs only
$100,000
– Suppose damage
to corn is $500,000
by the cattle
– What should
happen?
But Property Rights Matter
in a world with transaction costs
• It is often costly to arrange contracts between
ranchers and farmers
• Suppose the fence costs more than the damage
– If the property right to safe crops is established, the
farmer will want a fence regardless of cost. An
uneconomic fence is constructed.
– If the property right is to open range grazing, the
rancher will not want a fence. No fence is built.
– Therefore, who gets the property right matters!
Solutions to Externalities
Solution by:
• Prohibition
• Directive
• Voluntary Payment
• Merger
• Taxes and Subsidies
• Sale of Pollution Rights
• Regulation
Summary
• Governments historically have helped some companies
by restricting or eliminating competition.
• Examples
– Licensing of professions (or businesses)
– Patents of ideas or processes restricts
use of the idea
– Restrictions on price competition
• Import Quotas and Import Tariffs
• Government Subsidies
• Government Promotion
• Tax as a Regulatory Tool.