18
Antitrust Policy and Regulation
McGraw-Hill/Irwin
Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
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Chapter Objectives
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
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• 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
Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy
and Regulation
The Antitrust
Laws
ANTITRUST POLICY
AND REGULATION
Antitrust Policy
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
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Industrial Regulation
Social Regulation
Copyright McGraw-Hill/Irwin, 2002
Antitrust Laws
• The purpose:
•Prevent monopoly
•Promote competition
•Achieve allocative
efficiency
LO1
18-4
THE ANTITRUST LAWS
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
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Historical Background
•Trusts
•P=MC Pricing
•Monopoly Pricing
•Regulatory Agencies
•Natural Monopolies
Copyright McGraw-Hill/Irwin, 2002
THE ANTITRUST LAWS
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
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Sherman Act of 1890
• Section 1 - Restraint of Trade
• Section 2 – Monopolization
• Treble Damages
Clayton Act of 1914
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•
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Section 2 - Price Discrimination
Section 3 - Tying Contracts
Section 7 – Stock Ownership
Section 8 – Interlocking
Directorates
Copyright McGraw-Hill/Irwin, 2002
THE ANTITRUST LAWS
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
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• Established FTC
• Holds Hearings on Complaints
• Seeks Cease-and-Desist Orders
Wheeler-Lea Act of 1938
Key Terms
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Federal Trade Commission
Act of 1914
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• Policing Deceptive Practices
• False Advertising
• Misleading Representation of
Products
Copyright McGraw-Hill/Irwin, 2002
THE ANTITRUST LAWS
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
Celler-Kefauver Act of 1950
• Strengthened Clayton Act
Regarding Asset Ownership in
Competing Firms
• Anticompetitive Mergers Illegal
No Matter How Accomplished
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Copyright McGraw-Hill/Irwin, 2002
THE ANTITRUST LAWS
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
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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 Case
Issues of Enforcement: Tradeoffs
Among Goals
• Balance of Trade
• Defense Cutbacks
• Emerging New Technologies
Copyright McGraw-Hill/Irwin, 2002
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
THE ANTITRUST LAWS
Effectiveness of Antitrust
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
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• Existing Market Structures
• Mergers
•Merger Types
•Horizontal Merger
•Vertical Merger
•Conglomerate Merger
• Merger Guidelines
•Herfindahl Index
• Price Fixing – Per se Violations
• Tying Contracts
Copyright McGraw-Hill/Irwin, 2002
Types of Mergers
Antitrust Policy
and Regulation
Automobiles
Blue Jeans
Conglomerate Merger
The Antitrust
Laws
Types of Mergers Autos
Industrial
Regulation
Blue
Jeans
A
B
C
D
E
F
Social Regulation
Key Terms
T
U
V
Glass
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W X Y Z
Denim
Fabric
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Horizontal Merger
Copyright McGraw-Hill/Irwin, 2002
Vertical Merger
18-12
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
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
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Problems with Industrial Regulation
• Regulators establish rates to give
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natural monopoly “fair return”
No incentive to reduce cost
X-inefficiency
Perpetuate monopoly
• Conditions of natural monopoly can
end
Legal Cartel Theory
18-15
Deregulation
• Began in the 1970s
• Has produced large net benefits for
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consumers and society
Industries deregulated include:
• Airlines
• Railroads
• Telecommunications
• Electricity
18-16
SOCIAL REGULATION
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
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Applies to Far More Firms
More Intrusive into Daily
Activities
•Food & Drugs (1906)
•EEOC (1964)
•OSHA (1971)
•EPA (1972)
•CPSC (1972)
Optimal Level of Social
Regulation
Copyright McGraw-Hill/Irwin, 2002
Social Regulation
• Concerned with the conditions under
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which goods and services are
produced
Impact of production on society
Physical qualities of goods
Applied “across the board” to all
industries
18-18
Social Regulation
LO4
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
18-19
Social Regulation
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
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• 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
Copyright McGraw-Hill/Irwin, 2002
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
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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
Copyright McGraw-Hill/Irwin, 2002
Key Terms
Antitrust Policy
and Regulation
The Antitrust
Laws
Types of Mergers
Industrial
Regulation
Social Regulation
Key Terms
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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
Copyright McGraw-Hill/Irwin, 2002
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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
