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Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

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Page 1: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Antitrust Policy and Regulation

Chapter 18

McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

Page 2: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Chapter Objectives

• Antitrust laws in the United States

• Interpretation and application of antitrust laws

• Natural monopolies• Social regulation

18-2

Page 3: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Antitrust Laws

• The purpose:–Prevent monopoly

–Promote competition

–Achieve allocative efficiency

• Historical background–Regulatory agencies

–Antitrust laws

18-3

Page 4: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Antitrust Laws

• Sherman Act 1890• Clayton Act 1914

– Outlaw price discrimination– Prohibit tying contracts– No interlocking directorates

• Federal Trade Commission Act 1914• Wheeler-Lea Act 1938• Celler-Kefauver Act 1950

18-4

Page 5: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Antitrust Policy

• Issues of interpretation• Monopoly behavior or structure

–1920 U.S. Steel Case–1945 Alcoa Case

18-5

Page 6: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Effectiveness of Antitrust Laws

• Monopoly–Microsoft Case

• Mergers–Horizontal merger

–Vertical merger

–Conglomerate merger

18-6

Page 7: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Natural Monopoly

• Economies of scale• Public utilities

–Electricity, water, gas, phone• Solutions for better outcomes

–Public ownership–Public regulation–Public interest theory of regulation

18-7

Page 8: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Industrial Regulation

• Regulators establish rates to give natural monopoly “fair return”

• No incentive to reduce cost

• X-inefficiency

• Perpetuate monopoly–Conditions of natural monopoly can

end

18-8

Page 9: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Social Regulation

• Applies “across the board” to all industries

• Food and Drug Administration 1906• Equal Employment Opportunity

Commission 1964• Occupational Safety and Health

Administration 1971• Environmental Protection Agency 1972• Consumer Product Safety Commission

197218-9

Page 10: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Social Regulation

• Optimal level of social regulation• In support of social regulation• Criticisms of social regulation• Two reminders

–There is no free lunch–Less government is not always

better than more

18-10

Page 11: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

United States vs. Microsoft

• Charged May 1998 under the Sherman Act

• Accused of having a “Windows” monopoly

• District court findings:– Used anticompetitive means

• District court remedy• Appeals court ruling• Final settlement

18-11

Page 12: Antitrust Policy and Regulation Chapter 18 McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved

Key Terms• antitrust policy

• industrial regulation

• social regulation

• Sherman Act

• Clayton Act

• tying contracts

• interlocking directorates

• Federal Trade Commission Act

• cease-and-desist order

• Wheeler-Lea Act

• Celler-Kefauver Act

• Standard Oil case

• U.S. Steel case

• rule of reason

• Alcoa case

• DuPont cellophane case

• Microsoft case

• horizontal merger

• vertical merger

• conglomerate merger

• per se violations

• natural monopoly

• public interest theory of regulation

• legal cartel theory of regulation 18-12


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