Antitrust Policy & Regulation

What’s the Problem with Market Power? (Competition is Limited) Tend to produce less Charge higher prices Less incentive to provide quality for the consumer If the consumer is unhappy, they can….? Identify Examples of Firms with Market Power

Monopoly A firm that is the only producer and seller of a product (and there are no close substitutes for that product)

ANTI-TRUST LAWS Stated another way…(Anti-monopoly )laws Prevent one company from gaining too much power

Sherman Antitrust Act 1890 – used in early 1900’s First government law to limit monopolies Gave federal gov’t power to investigate trusts and companies suspected of violating the Act “Antitrust” really means “competition law” Outlaws monopolies

Clayton Antitrust Act 1914 Strengthened Sherman Act Prohibit “anticompetitive practices” Mergers/Acquisitions that lessen competition One person being a director of competing companies

John D. Rockefeller controlled nearly all trade for oil and gas. The Supreme Court used the Sherman Act to break up Standard Oil into 34 companies.

Microsoft Case in US http://www.wired.com/techbiz/it/news/2002/11/35212 -case timeline Microsoft has spent 21 years — more than half its lifetime — fighting antitrust battles with the U.S. government. It has earned a page in the history books, waging one of the biggest monopoly wars in this country.

The company barely escaped being split up after it was ruled an unlawful monopolist in 2000 for using its stranglehold on the PC market with its Windows operating system to cripple competitors, such as Netscape's Navigator Web browser.

Countries with Antitrust Laws shown in red

Mergers The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. Basically, when two companies become one. This decision is usually mutual between both firms.

Acquisition A corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm.

Acquisitions are often made as part of a company's growth strategy whereby it is more beneficial to take over an existing firm's operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company's stock or a combination of both.

AT&T ended its effort to buy T-Mobile USA, acknowledging that it could not overcome stiff opposition by the Obama administration to form the nation’s biggest cellphone service provider. -2011, Dec

The decision to scrap the $39 billion takeover — which would have been the biggest deal of the year — is a major setback for AT&T, which had pinned its hopes for growth on the acquisition. The company wanted T-Mobile’s cellular airwaves, or spectrum, to relieve its congested network and offer faster service for data-hungry devices like the iPhone.

And the deal’s end leaves T-Mobile, the weakest of the four national operators, with an uncertain future. For the Obama administration, the collapse of the deal is confirmation that it has reinvigorated antitrust oversight that it said had become weak under its predecessor. The Justice Department took the aggressive step of suing to block the deal in late August, while the Federal Communications Commission had signaled its intent to fight the merger as well.

Govt. carefully monitors and decides if mergers and acquisitions are legal, based on the Anti Trust Laws Goal of the US Govt: Protect Consumers Ensure Free and Fair Competition

How Do You Feel About Government Regulation in the US Economy?

Competition Is Good Competition among companies leads to…

….but….Competition among consumers can lead to …