Chapter 18: Antitrust Policy and Regulation

Antitrust policy

Laws and government actions designed to prevent monopoly and promote competition

Industrial regulation

Gov’t regulation of firms’ prices within selected industries

Social regulation

Government regulation of the conditions under which goods are produced, the physical characteristics of goods, and the impact of the production and consumption of goods on society

Sherman Act

Cornerstone of antitrust legislation

Clayton Act

Strengthened + made clear the intent of the Sherman Act

Tying contracts

Producer requires that a buyer purchase another (or others) of its products as a condition for obtaining a desired product

Interlocking directorates

Situations where a director of one firm is also a board member of a competing firm—in large corporations where the effect would be reduced competition

Federal Trade Commission Act

Created Federal Trade Commission (FTC)

Individual firms

________ can sue other firms under antitrust laws.

Cease-and-desist orders

Issued in cases with unfair methods of competition

Wheeler Lea Act

________- Amended Federal Trade Commission Act + gave FTC more responsibilities.

Wheeler-Lea Act

Amended Federal Trade Commission Act + gave FTC more responsibilities

Celler-Kefauver Act

Amended Clayton Act; prohibited one firm from obtaining the physical assets of another firm when the effect would be reduced competition

Standard Oil case

Supreme Court found Standard Oil guilty of monopolizing the petroleum industry through a series of abusive and anticompetitive actions

US Steel case

Courts established a rule of reason, saying that not every monopoly is illegal

Alcoa case

Even though a firm’s behavior may be legal, possessing monopoly power violates antitrust laws

DuPont cellophane case

The government contended that DuPont, along with a licensee, controlled 100 percent of the cellophane market. But the Court accepted DuPont’s contention that the relevant market included all “flexible packaging materials”—waxed paper, aluminum foil, and so forth, in addition to cellophane

Microsoft case

Microsoft was found guilty of violating the Sherman Act by taking several unlawful actions designed to maintain its monopoly of operating systems for personal computers. A lower court ordered that Microsoft be split into two competing firms. A court of appeals upheld the lower-court finding of abusive monopoly but rescinded the breakup of Microsoft. Instead of the structural remedy, the eventual outcome was a behavioral remedy in which Microsoft was prohibited from engaging in a set of specific anticompetitive business practices

Horizontal merger

Merger between two competitors that sell similar products in the same geographic market

Vertical merger

Merger between firms at different stages of the production process

Conglomerate merger

Any merger not horizontal or vertical

Per se violations

Collusive activities such as scheming to rig bids on government contracts or dividing up sales in a market

Natural monopoly

When economies of scale are so extensive that a single firm can supply the entire market at a lower unit cost than could a number of competing firms

Public interest theory of regulation

Industrial regulation is necessary to keep a natural monopoly from charging monopoly prices and thus harming consumers and society

Legal cartel theory of regulation

Practical politicians “supplying” regulation to local, regional, and national firms that fear the impact of competition on their profits or even on their long-term survival. These firms desire regulation because it yields a legal monopoly that can virtually guarantee a profit