18
Antitrust Policy and Regulation
Antitrust Laws
• The purpose:
• Prevent monopoly
• Promote competition
• Achieve allocative efficiency
• Historical background
• Regulatory agencies
• Antitrust laws
18-2
LO1
Antitrust Laws
• Sherman Act 1890
• Clayton Act 1914
• Outlaw price discrimination
• Prohibit tying contracts
• Prohibit stock acquisition
• No interlocking directorates
• Federal Trade Commission Act 1914
• Wheeler-Lea Act 1938
• Celler-Kefauver Act 1950
LO1
18-3
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
18-4
LO2
Effectiveness of Antitrust Laws
• Monopoly
• AT&T
• Microsoft Case
• Mergers
• Horizontal merger
• Vertical merger
• Conglomerate merger
LO2
18-5
Mergers
Automobiles
Blue Jeans
Conglomerate Merger
Autos
A
T
B
U
C
V
Glass
Horizontal Merger
LO2
D
E
F
W X Y Z
Blue
Jeans
Denim
Fabric
Vertical Merger
18-6
Mergers
• Merger guidelines
• The Herfindahl Index
• Price fixing
• Price discrimination
• Tying contracts
18-7
LO2
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
18-8
LO3
Industrial Regulation
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
LO3
18-9
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
18-10
LO3
Deregulation
• Began in the 1970s
• Has produced large net benefits for
•
consumers and society
Industries deregulated include:
• Airlines
• Railroads
• Telecommunications
• Electricity
18-11
LO3
Social Regulation
• Concerned with the conditions under
•
•
•
LO4
which goods and services are
produced
Impact of production on society
Physical qualities of goods
Applied “across the board” to all
industries
18-12
Social Regulation
Commission
(Year Established)
Jurisdiction
Food 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
18-13
LO4
Social Regulation
• Optimal level of social regulation
• In support of social regulation
• Criticisms of social regulation
• Two reminders
• There is no free lunch
• Less government is not always
better than more
18-14
LO4
United States vs. Microsoft
• Charged in May 1998 under the
•
•
•
•
•
Sherman Act
Accused of having a “Windows”
monopoly
District court findings:
• Used anticompetitive means
District court remedy
Appeals court ruling
Final settlement
18-15