UNIT 12 Economic Regulation and Antitrust Policy

Market Power

The ability of a firm to raise its price without losing all its customers to rival firms. e.g Apple, Nike, Polo

Economic Regulation

Government regulation of natural monopoly, where because of economy of scale, average production cost is lowest when a single firm supplies the market. e.g energy

Social Regulation

Government regulation aimed at improving health and safety….OSHA: Occupational Safety and Health Administration (late 60s)

Antitrust Policy

Government regulation aimed at preventing monoploy and fostering competition in markets where competition is desirable.

Public Utilituies

Government owned or government regulated monopolies. (Airline regulation and deregulation)

hard to change flight tine and ticket, 2001 first hit, 2008-9 first class flights cut down,

Trust

Any firm or group of firms that tries to monopolize a market.

Sherman Antitrust Act of 1890

First national legislation in the world against monopoly; prohibited trusts, restraint of trade, and monopolization, but the law was vague and ineffective.

Clayton Act of 1914

Strengthened Sherman Act, outlawed certain anticompetitive practices not prohibited by the Sherman Act, including price discrimination, trying contracts, exclusive dealing, interlocking directorates, and buying corporate stock of a competitor.

Tying Contract

A seller of one good requires a buyer to purchase either goods as part of the deal. e.g Apple

Exclusive Dealing

A supplier prohibits customers from buying from other suppliers of the product.

Interlocking directorate

A person serves in the boards of directors of two or more competing firms.

Federal Trade Commission (FTC) Act of 1914

Established a federal body to help enforce antitrust laws ;run by commissioners assisted by economists and lawyers.

Celler-Kefauver Anti-Merger Act

Passed in 1950, prevents one firm from buying the physical assets of another firm if the effect is to reduce competition. This law can block a horizontal/ vertical merger.

Horizontal Merger

A merger in which one firm combines with another that produces/sells the same product.

Vertical merger

A merger in which one firm combines with another from which it had purchased inputs or to which it had sold output.