Antitrust Policy and Regulation Study Notes

Antitrust Policy and Regulation Overview

• Purpose of Antitrust Policy:

  • Prevent monopolization

  • Promote competition

  • Achieve allocative efficiency

Major Antitrust Laws

• Sherman Act (1890)

• Clayton Act (1914):

  • Outlaws price discrimination

  • Prohibits tying contracts and stock acquisition

  • No interlocking directorates

• Federal Trade Commission Act (1914):

  • Cease-and-desist order

• Wheeler-Lea Act (1938)

• Celler-Kefauver Act (1950)

Antitrust Policy Issues

• Monopoly Behavior vs. Structure:

  • Significant cases: Standard Oil (1911), U.S. Steel (1920)

  • Concepts: Rule of reason, Relevant market (DuPont cellophane case, 1956)

• Enforcement Issues

Effectiveness of Antitrust Laws

• Key Cases: AT&T, Microsoft

• Types of Mergers:

  • Horizontal, Vertical, Conglomerate

• Herfindahl Index

• Per se violations: Price fixing, Price Discrimination, Tying Contracts

Industrial Regulation

• Natural Monopolies:

  • Economies of scale

  • Sectors: Public utilities (electricity, water, gas)

• Solutions for Better Outcomes:

  • Public ownership, Public regulation, Public interest theory

Main Regulatory Commissions

• Federal Energy Regulatory Commission (1930):

  • Jurisdiction: Electricity, gas, water-power

• Federal Communications Commission (1934):

  • Jurisdiction: Telecommunication services

• State Public Utility Commissions:

  • Jurisdiction: Utilities (electricity, gas, telephones)

Deregulation

• Started: 1970s

• Benefits: Large net benefits for consumers and society

• Deregulated Industries: Airlines, Railroads, Telecommunications, Electricity

Social Regulation

• Addresses:

  • Conditions of production

  • Impact on society

  • Physical qualities of goods

• Scope: Applied universally across all industries

Level of Social Regulation

• Optimal Level: Balancing support and criticisms

• Key Reminders:

  • No free lunch

  • Less government not always better than more