Antitrust Policy and Regulation
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Copyright 2008 The McGraw-Hill Companies 30-1 Antitrust P olicy Policy Issu es and Impa cts Effectivene ss of Antit rust Laws Industrial Regulations Social Regu lation Last Word Key Terms End Show 30 Antitrust Policy and Regulation
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30. Antitrust Policy and Regulation. Chapter Objectives. The Core Elements of the Major Antitrust (Antimonopoly) Laws in the United States Some of the Key Issues Relating to the Interpretation and Application of Antitrust Laws - PowerPoint PPT Presentation
Transcript of Antitrust Policy and Regulation
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Antitrust PolicyPolicy Issues and ImpactsEffectiveness of Antitrust LawsIndustrial RegulationsSocial RegulationLast Word
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30Antitrust Policy and Regulation
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Chapter Objectives• The Core Elements of the Major
Antitrust (Antimonopoly) Laws in the United States
• Some of the Key Issues Relating to the Interpretation and Application of Antitrust Laws
• The Economic Principles and Difficulties Related to the Setting of Prices (Rates) Charged by So-Called “Natural Monopolies”
• The Nature of “Social Regulation,” Its Benefits and Costs, and Its Optimal Level
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Antitrust Policy• The Antitrust Laws
–Historical Background–Regulatory Agencies–Sherman Act of 1890–Clayton Act of 1914
•Price Discrimination•Tying Contracts• Interlocking Directorates
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Historical Background• Trusts begin to form after U.S.
Civil War• Questionable tactics, less output
and higher prices (underallocation of resources)
• In late 1800s and early 1900s, two means of control:
• 1. regulatory agencies – for natural monopoly
• 2. antitrust laws
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Sherman Act of 1890• Cornerstone of antitrust
legislation• Monopolization a felony,
outlawed restraints of trade
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Other Antitrust Legislation• Clayton Act of 1914 –
strengthened the Sherman Act by outlawing techniques that firms may use to develop monopoly power
• Outlaws price discrimination, prohibits tying contracts, and forming of interlocking directorates
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Antitrust Policy• The Antitrust Laws
– Federal Trade Commission Act of 1914 – created FTC as an independent antitrust agency• Cease and Desist Orders• Wheeler-Lea Act 1938
–Deceptive Acts or Practices – made unfair and deceptive sales practices illegal
• Celler-Kefauver Act 1950–Merger Regulation
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Policy Issues and Impacts• Issues of Interpretation
– Focus on Monopoly Behavior or Structure• 1911 Standard Oil Case – Standard Oil
found guilty of monopolizing industry and was forced to break up
• 1920 U.S. Steel Case– Rule of Reason –not every monopoly
illegal• 1945 Alcoa Case – found guilty of
monopolizing aluminum ignot market– How Broadly Should Markets be Defined?
• 1956 DuPont Cellophane Case – controlled 100% of cellophane market but only 20% of packaging materials market – not guilty
• Issues of Enforcement
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Effectiveness of Antitrust Laws• Monopoly
– Microsoft Case – found guilty of violating Sherman Act in 2000
• Mergers– Merger Types
• Horizontal Merger – merger between two competitors producing similar products (Ex. Nextel and Sprint)
• Vertical Merger – merger b/w firms involved in different steps of the productive process
• Conglomerate Merger – combination of firms in different industries (Ex. Disney and ABC)
O 30.1
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Effectiveness of Antitrust Laws
Automobiles Blue JeansTypes of Mergers
Autos
Glass
BlueJeans
DenimFabric
A CB D E F
ZYXWVUT
Horizontal Merger
Conglomerate Merger
Vertical Merger
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Effectiveness of Antitrust Laws• Merger Guidelines
– The Herfindahl Index – Chapter 23– Price Fixing – Examples on p. 587
• Per Se Violations – “in and of themselves” illegal
– Price Discrimination – only challenged when it reduces competition
– Tying Contracts – strictly prohibited
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Industrial Regulation• Natural Monopoly – economies of scale so
extensive that single firm produces at lower cost than could competing firms– Public Ownership– Public Regulation– Public Interest Theory of Regulation
• Problems With Industrial Regulation– Costs and Inefficiency– Perpetuating Monopoly– Legal Cartel Theory
• Deregulation
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Social Regulation• Distinguishing Features
–Food and Drug Administration 1906
–Equal Employment Opportunity Commission 1964
–Occupational Safety and Health Administration 1971
–Environmental Protection Agency 1972
–Consumer Product Safety Commission 1972
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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
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United States v. Microsoft
• Charges May 1998• Windows Monopoly• District Court Findings
–95% of Intel PCs–Restrictive Contracts–District Court Remedy
• Appeals Court Ruling• Final Settlement
–No Break Up
Last
Word
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32Income Inequality and Poverty
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Facts About Income Inequality• Average Household Income
$60,258 in 2004 - Among the Highest in the World
(1)Personal
Income Category
(2)Percentage of All
Households in this Category
Under $10,000$10,000 - $14,999$15,000 - $24,999$25,000 - $34,999$35,000 - $49,999$50,000 - $74,999$75,000 - $99,999$100,000 and Above
Distribution of U.S. Income by Households, 2004
8.76.7
12.911.914.818.311.015.7
100.0Source: Bureau of the Census
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Facts About Income Inequality• Division Into 5 Equal Groups
(1)Quintile
(2)Percentage ofTotal Income
Lowest 20%Second 20%Third 20%Fourth 20%Highest 20%Total
Distribution by Quintiles, 2004
3.48.7
14.722.250.1
100.0Source: Bureau of the Census
(3)Upper
Income Limit
$18,50034,73855,33188,029
No Limit
Income Mobility: The Time Dimension
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Facts About Income Inequality• Lorenz Curve and Gini Ratio
The Lorenz Curve
20 40 60 80 100
20
40
60
80
100
0
Perfect Equality
Lorenz Curve(Actual Distribution)
Complete Inequality
A B
ab
c
d
e
f
Gini Ratio =Area A
Area A + Area B
Percentage of Households
Perc
enta
ge o
f Inc
ome
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G 32.1
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Facts About Income Inequality• Effect of Government
Redistribution
20 40 60 80 100
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40
60
80
100
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Lorenz CurveBefore Taxes and
Transfers
Percentage of Households
Perc
enta
ge o
f Inc
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Lorenz CurveAfter Taxes and
Transfers
Impact of Government Taxes and Transfers
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The Economics of Poverty
Female-HouseholdersAfrican-Americans
HispanicsForeign-Born (Not Citizens)
Children Under 18Women
Total PopulationMen
WhitesAsian
Persons 65 or OlderMarried-Couple Families
Full-Time Workers
0 10 20 30
24.721.9
21.417.8
13.912.711.5
10.89.89.8
5.52.8
28.4
Poverty Rates Among Selected Population Groups,2004
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U.S. Income-Maintenance System• Entitlement Programs
–Social Insurance Programs–Social Security –Medicare–Unemployment
Compensation–Public Assistance “Welfare”–Supplemental Security
Income (SSI) Program–Temporary Assistance for
Needy Families (TANF)–Food-Stamp Program
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The EndI am going to miss taking notes in Econ omics class!!!!!
