Chapter 21- Antitrust Policy

The Sherman Act of 1890

(1) any contract that tends to restrain trade is illegal, and

(2) trying to monopolize any part of trade is a felony offense. This act provided a basic foundation for antitrust legislation but was not specific enough

Clayton Act 1914

Outlaws price discrimination

Prohibits tying contracts and stock acquisition

No interlocking directorates

Federal Trade Commission Act 1914

Gives the government the right to issue cease-and-desist orders when they find "unfair methods of competition.

This is an order for a corporation or individual to stop a certain practice

Wheeler-Lea Act 1938

Gave the FTC additional authority over the area of deceptive advertising.

Celler-Kefauver Act 1950

Amended the Clayton Act by closing the loophole about mergers; now anti-competitive mergers are prohibited no matter how they are undertaken.

Types of Mergers

Mergers

-Horizontal merger - between two competitors that sell similar products in the same geographic market

-Vertical merger - mergers between firms with buyer-seller relationship

-Conglomerate merger - neither of the two

Pigouvian Taxes

Taxes imposed on activities that generate negative externalities, aimed at aligning private costs with social costs to discourage harmful behaviors.

Cap and Trade Programs

Market-based approaches to controlling pollution by providing economic incentives for achieving reductions in the emissions of pollutants; firms can buy and sell emission permits.

Command-and-Control Regulation

Traditional regulatory approach where the government sets specific limits on pollution emissions and the technologies firms must use to control them.

Microsoft Antitrust Case

A legal case initiated against Microsoft in 1998, accusing the company of maintaining its monopoly in the PC market by engaging in anti-competitive practices.

Impact of the Sherman Act on Microsoft

The Sherman Act was used in the Microsoft case to assert that Microsoft's actions constituted illegal monopolization and restraint of trade.

Outcome of Microsoft Antitrust Case

The case concluded with a settlement in 2001, where Microsoft agreed to share its application programming interfaces with third-party companies and ended certain business practices.

Relation to the Sherman Act

The Microsoft case illustrated the application of the Sherman Act by showing how the law is enforced to prevent monopolistic behavior in the technology sector.