1 / 79

Chapter 13 Antitrust and Regulation

Chapter 13 Antitrust and Regulation. Key Concepts Summary Practice Quiz Internet Exercises. ©2000 South-Western College Publishing. In this chapter, you will learn to solve these economic puzzles:. Why is market failure an economic rationale for regulation?.

maverick
Download Presentation

Chapter 13 Antitrust and Regulation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 13Antitrust and Regulation • Key Concepts • Summary • Practice Quiz • Internet Exercises ©2000 South-Western College Publishing

  2. In this chapter, you will learn to solve these economic puzzles: Why is market failure an economic rationale for regulation? Can universities and colleges improve education by engaging in price-fixing? Why doesn’t the water company or electric company compete?

  3. What is a Trust? A combination or cartel consisting of firms that place their assets in the custody of a board of trustees

  4. What isPredatory Pricing? The practice of one or more firms temporarily reducing prices in order to eliminate competition and then raising prices

  5. When was the age of the Robber Barons? In the later part of the 1800’s

  6. What was done to limit the power of Trusts? Congress passed laws aimed at preventing firms from engaging in anticompetitive activities

  7. What is theSherman Act? The federal antitrust law enacted in 1890 that prohibits monopolization and conspiracies to restrain trade

  8. What is the Clayton Act? A 1914 amendment that strengthens the Sherman Act by making it illegal for firms to engage in certain anticompetitive business practices

  9. What business practices were declared illegal under the Clayton Act? • Price discrimination • Exclusive dealing • Tying contracts • Stock acquisition of competing companies • Interlocking directorates

  10. Was the Clayton Act an improvement over the Sherman Act? Although more specific than the Sherman Act, the Clayton Act is also vague

  11. What is the Federal Trade Commission Act? The federal act that in 1914 established the Federal Trade Commission (FTC) to investigate unfair competitive practices of firms

  12. What is theRobinson-Patman Act? A 1936 amendment to the Clayton Act that strengthens the Clayton Act against price discrimination

  13. What is the basic purpose of the Robinson-Patman Act? To prevent large sellers from offering different prices to different buyers where the effect is to harm even a single small firm

  14. What is theCeller-Kefauver Act? A 1950 amendment to the Clayton Act that prohibits one firm from merging with a competitor by purchasing its physical assets if the effect is to substantially lessen competition

  15. What are some key Antitrust cases? • Standard Oil Case 1911 • Alcoa Case 1945 • IBM Case 1982 • AT&T Case 1982 • MIT Case 1992 • Microsoft Case 1995

  16. What was the outcome of the Standard Oil Case? The Rule of Reason

  17. What is theRule of Reason? The antitrust doctrine that the existence of monopoly alone is not illegal unless the monopoly engages in illegal business practices

  18. What was the outcome of the Alcoa Case? The Per se Rule

  19. What is the Per se Rule? The antitrust doctrine that the existence of monopoly alone is illegal, regardless of whether or not the monopoly engages in illegal business practices

  20. What was the result of the IBM Case? A switch back to the Rule of Reason

  21. What was the result of the AT&T Case? Technology made this government-regulated natural monopoly obsolete, and AT&T was found guilty of anticompetitive pricing

  22. What was the result of the MIT Case? Eight Ivy League schools agreed to stop colluding to fix prices, and MIT was found guilty of price fixing

  23. What was the result of the Microsoft Case? Microsoft was not allowed to purchase Intuit Inc., a competitor in the personal finance software industry

  24. How can firms avoid charges of Price Fixing? They can merge into one company

  25. When did a lot of Mergers begin taking place? In the 1980’s

  26. What are the different types of Mergers? • Horizontal • Vertical • Conglomerate

  27. What is aHorizontal Merger? A merger of firms that competes in the same market

  28. What is aVertical Merger? A merger of a firm with its suppliers

  29. What is aConglomerate Merger? A merger between firms in unregulated markets

  30. What can be said about Conglomerate Mergers? They are generally allowed because they do not significantly decrease competition

  31. What can be said about Antitrust Laws in other Countries? They are weak in comparison to U.S. antitrust laws

  32. What is the history of Government Regulation? From the later part of the 1800’s to the 1970’s, there was an increase in regulation; in the 1970’s there was a movement away from regulation

  33. What is the basic argument in favor of Government Regulation? Market failure

  34. In what ways does the Market Fail? • Natural monopoly • Externalities • Imperfect information

  35. What is aNatural Monopoly? An industry in which long-run average cost is minimized when only one firm serves the market

  36. What isMarginal Cost Pricing? A system of pricing in which the price charged equals the marginal cost of the last unit produced

  37. P Regulated Monopoly $50 Fair return price efficient price $40 $30 A $25 $20 B $15 LRAC $10 C LRMC $5 MR D Q 1 2 3 4 5 6 7 8 9

  38. What is aNormal Profit? The accounting profit required to induce a firm’s owners to employ their resources in the firm

  39. Do Production Costs include Normal Profit? Yes, because normal profit is considered a necessary expense of a business

  40. What kind of Profit is made at theFair Return Price? Normal Profit

  41. What happens when Pollution is present? Pollution causes polluting firms to overproduce, while causing firms that pay the cost of cleaning up the pollution to underproduce

  42. What can be done when the Externality of Pollution is present? The government can regulate the industry to minimize the pollution

  43. What happens with Imperfect Information? Deficient information on unsafe products can cause consumers to overconsume a product

  44. P Impact of Imperfect Information $20 S E1 $15 E2 $10 D1 $5 D2 Q 25 50 75 100

  45. Decrease in quantity supplied Increase in Demand Consumers informed of defect

  46. Key Concepts

  47. Key Concepts • What is a Trust? • What is Predatory Pricing? • What is the Sherman Act? • What is the Clayton Act? • What is the Federal Trade Commission Act? • What is the Robinson-Patman Act? • What is the Celler-Kefauver Act? • What is the Rule of Reason? • What is the Per se Rule?

  48. Key Concepts cont. • What are the different types of Mergers? • What is a Horizontal Merger? • What is a Vertical Merger? • What is a Conglomerate Merger? • What can be said about Antitrust Laws in other Countries? • What is a Natural Monopoly? • What happens when Pollution is present? • What happens with Imperfect Information?

  49. Summary

  50. A trust is a cartel that places the assets of competing companies in the custody of a board of trustees. During the last decades of the 19th century, trusts engaged in anticompetitive strategies to eliminate competition and raise prices, such as predatory pricing.

More Related