Economics Chapter 7 section 3
Antitrust, Economic Regulation, and
Competition
• Antitrust activity – Government efforts
aimed at preventing monopoly and
promoting competition in markets
where competition is desirable.
• U.S. Antitrust Activity
• 1. Promote the market structure that
will lead to greater competition, and
• 2. Reduce anticompetitive behavior.
Antitrust laws
• Antitrust laws attempt to promote
socially desirable market performance.
• Sherman Antitrust Act of 1890 outlawed
the creation of trusts, restraint trade,
and monopolization.
• A trust is any firm or group of firms that
tries to monopolize a market.
The Clayton Act of 1914
• Law was passed to outlaw certain
practices not prohibited by the Sherman
Act and to help government stop a
monopoly before it developed.
The Federal Trade Commission (FTC)
Act of 1914
• Established a federal body to help
enforce antitrust laws.
• FTC has five full-time commissioners
assisted by a staff of mostly economists
and lawyers.
Merger and Antitrust
• Way to reduce competition
• A merger is the combination of two or
more firms to form a single firm.
• Federal antitrust officials approve or
deny proposed mergers
• Officials consider the merger’s impact
on the share of sales by the largest
firms in the industry.
Continued
• Few firms account for a relatively large
share of sales in the market (more than
½) any merger increases share may be
challenged.
Federal guidelines
• Horizontal mergers-involve firms in the
same market, such as a merger
between competing oil companies.
• Nonhorizontal merger-include all other
types of mergers. Hold greater interest
for antitrust officials.
Flexible Merger Policy
• A merger of american companies to
compete against foreign competition.
• E.I. airlines
Two Views of Government
Regulations
Public Interest
• Regulation promotes social welfare by
reducing the price and increasing the
output when a market is served most
efficiently by one or just a few firms.
• Special Interest- well-organized
producer groups expect to profit from
government regulation by persuading
public officials to impose restrictions
that these groups attract.
Deregulations
• A reduction in government control over
prices and firms entry in previously
regulated markets, such as airlines and
trucking.
• Ex. airlines