Chapter 8 - Regulation and Anti-trust Laws

• Anti-trust laws were intended to allow businesses to operate without the kinds of detailed government supervision which exist under ==regulatory commissions,== but with a sort of general surveillance, like that of traffic police, with intervention occurring only when there are specific violations of laws.

Regulatory Commissions:

• Although the functions of a regulatory commission are fairly straightforward in theory, in practice its task is far more complex and, in some respects, impossible.
• Ideally, a regulatory commission would set prices where they would have been if there were a ==competitive marketplace==.
• The most that a regulatory agency can do is accept what appear to be reasonable production costs and allow the monopoly to make what seems to be a reasonable profit over and above such costs.
• The ==economic complexities== involved when regulatory agencies set prices are compounded by political complexities.
• From the standpoint of the economy as a whole, enormously greater costs were incurred than were necessary to get the work done.
• While open and unfettered competition would have been economically beneficial to the society as a whole, such competition would have been politically threatening to the regulatory commission.

Anti Trust Laws:

• With anti-trust laws, as with regulatory commissions, a sharp distinction must be made between their original rationales and what they actually do.
• ==Basic rationale== for anti-trust laws is to prevent monopoly and other non-competitive conditions which allow prices to rise above where they would be in a free and competitive marketplace.
• Competition vs Competitors:
  • The most important thing about competition is that it is a condition in the marketplace.
  • This condition cannot be measured by the number of competitors existing in a given industry at a given time, though politicians, lawyers and assorted others have confused the existence of competition with the number of surviving competitors.
  • Throughout the history of anti-trust prosecutions, there has been an unresolved confusion between what is detrimental to competition and what is detrimental to competitors.
  • What has often also been lost sight of is the question of the efficiency of the economy as a whole, which is another way of looking at the benefits to the consuming public.
  • Production costs are also lower when the producer receives a large enough order to be able to schedule production far ahead.

\

• Predatory Pricing:

  • One of the remarkable theories which has become part of the tradition of anti-trust law is “==predatory pricing==.”
  • According to this theory, a big company that is out to eliminate its smaller competitors and take over their share of the market will lower its prices to a level that dooms the competitor to unsustainable losses, forcing it out of business when the smaller company’s resources run out.
  • One of the most remarkable things about this theory is that those who advocate it seldom even attempt to provide any concrete examples of when this ever actually happened.
  • Predatory pricing is more than just a theory without evidence. It is something that makes little or no economic sense.

• Bankruptcy can eliminate particular owners and managers, but it does not eliminate competition in the form of new people, who can either take over an existing bankrupt enterprise or start their own new business from scratch in the same industry.

• Benefits and Costs of Anti-Trust Laws: Perhaps the most clearly positive benefit of American anti-trust laws has been a blanket prohibition against collusion to fix prices, which is an automatic violation, subject to heavy penalties, regardless of any justification that might be attempted.

\