chp 27- Regulation and Antitrust Policy in a Globalized Economy

FDA

Agency requiring drug safety and efficacy proof.

Economic Regulation

Government control of prices in specific industries.

Social Regulation

Regulation aimed at improving quality of life.

Natural Monopoly

Single firm produces at lower average cost.

Marginal Cost Pricing

Pricing based on the cost of producing one more unit.

Average Cost Pricing

Pricing reflects total production costs divided by output.

Cost-of-Service Regulation

Regulation allowing prices to reflect actual production costs.

Rate-of-Return Regulation

Regulation maintaining competitive industry return rates.

Caveat Emptor

Latin for 'let the buyer beware'.

Asymmetric Information

Unequal knowledge between buyers and sellers.

Lemons Problem

Decline in product quality due to information asymmetry.

Consumer Protection

Regulation ensuring safety and fairness for consumers.

Creative Response

Compliance with law's letter, not its spirit.

Feedback Effect

Behavior change that offsets regulatory impact.

Regulatory Nudges

Government strategies to influence consumer choices.

Paternalistic Lies

Misleading information to guide consumer behavior.

Health Insurance Regulation

Attempts to control costs and prices in healthcare.

Federal Agencies

Government bodies overseeing various regulatory functions.

Natural Monopoly Characteristics

Large economies of scale relative to industry demand.

Economic Regulation Examples

SEC, Fed, FCC, FAA oversee specific industries.

Social Regulation Goals

Improve products, reduce pollution, enhance working conditions.

Regulatory Costs

Expenses businesses incur to comply with regulations.

Market Failure

Inefficient allocation of resources in the market.

Externalities

Costs or benefits affecting third parties not involved.

Credence Goods

Products whose quality is difficult to assess.

Incentives for Regulation

Motivations for government to impose regulatory measures.

Regulatory History

U.S. government regulation increased in the 20th century.

Major Regulations

Over 1,200 regulations designated as 'major' since 1991.

Capture hypothesis

Regulators are influenced by industry special interests.

Share-the-gains, share-the-pains theory

Regulators balance demands of legislators, industry, and consumers.

Total social cost of regulation

Over $1.75 trillion annually in compliance costs.

California solar panel regulation

New homes must have solar panels, increasing prices.

Sherman Antitrust Act

Illegal to restrain trade or commerce among states.

Clayton Act

Clarifies and strengthens Sherman Act provisions.

Federal Trade Commission Act

Established FTC to investigate unfair trade practices.

Robinson-Patman Act

Protects retailers from unfair discrimination by chains.

Antitrust law exemptions

Certain sectors like labor unions are exempt.

Monopolization

Acquiring or maintaining monopoly power unlawfully.

Relevant market

Products closely substitutable in a geographic area.

Herfindahl-Hirschman Index (HHI)

Measures market concentration to assess mergers.

Versioning

Selling slightly different product versions to consumers.

Bundling

Selling multiple products together as a package.

Tie-in sales

Purchase of one product requires buying another.

Economic regulation

Government control of prices and market entry.

Social regulation

Regulation focused on societal welfare and safety.

Market failure

Inefficiencies in the market requiring regulation.

Asymmetric information

Unequal knowledge among parties in a transaction.

Creative response

Innovative strategies by regulators to address challenges.

Supreme Court interpretations

Judicial decisions shaping antitrust law enforcement.

Market share test

Determines dominance based on percentage of market.