Reforming the Regulatory Process Part 4 Chapter Ten Reforming the Regulatory Process

Chapter Ten Learning Objectives Become familiar with identified shortcomings of federal regulations. Recognize those things that ONLY government can do. Learn what efforts are being made to reform federal regulations and the principles that drive these efforts. Look at regulatory reform activities in other countries. Recognize the differences between the Sherman Act and the Clayton Act, and what types of organizations are exempted from their legal controls. Learn the purpose of the Federal Trade Commission Act and the Hart-Scott-Rodino Antitrust Improvement Act. Look at two theories of antitrust. Recognize new challenges to Antitrust laws.

Shortcomings of Federal Regulations Poorly drafted basic legislation Insufficient budgets Legislative excess that overloads agencies with impossible tasks and denies them money to carry out tasks Contradictory laws and regulations Lax administration, incompetent bureaucrats Interference of special interests in implementation

ONLY Government CAN: Set forth national goals and work out the necessary compromises to reconcile conflicts among various interests. Set priorities among various energy resources. Develop the ground rules under which private industry must work. Formulate a national policy on the environment that will strike a sensible and workable balance between environmental risk and economic risk. Establish and maintain our national security. Establish and control our foreign policy. Establish and control our tax policies to fund the benefits and protections enjoyed by all of us.

Reforming Regulation (more) Stress comparative advantages of government and business Rely more on the free market Privatize government-owned property and services Deregulate selected industries Introduce more incentive controls

Reforming Regulation (continued) Improve administration of the regulatory process Modify basic statutes Improve administration Coordinate regulatory mandates Reduce paperwork Throw out flapdoodle standards Speed decisions Write regulations in plain language

Regulatory Reform in Foreign Countries The Organization for Economic Co-operation and Development has studied in detail the regulatory reforms in 16 countries. Governments throughout the world are reducing controls over their economies. None approach the degree to which the United States has reformed its regulatory system.

Antitrust Laws (more) 1. SHERMAN ANTITRUST ACT (1890) defined “every contract, combination in the form of the trust or otherwise, or conspiracy, in restraint of trade or commerce … shall be deemed illegal.” 2. CLAYTON ANTITRUST ACT (1914) named specific monopolistic practices as prohibited by law. Price discrimination, exclusive and tying contracts, and interlocking directorates are illegal when the effects might be to lessen competition or tend to create a monopoly.

Antitrust Laws (continued) 3. FEDERAL TRADE COMMISSION ACT (1914) established an agency to continuously supervise and administer the antitrust laws to stop “unfair or deceptive acts or practices in commerce.” 4. HART-SCOTT-RODINO ANTITRUST IMPROVEMENT ACT (1976) requires companies to notify the FTC and DOJ of an intention to merge if their valuations exceed specific amounts.

SPECIFIC EXEMPTIONS to the Antitrust Laws Labor Unions Agricultural Cooperatives Insurance Industry Baseball Certain Joint Export Activities Certain Joint Research Efforts

Two Theories of Antitrust The Structure Theory The Performance Theory Structure is a reliable index of monopoly power Concentrated sales and assets indicate monopoly power Competition is spurred when concentration is broken apart Efficient performance leads to innovation, lower cost, lower prices, higher profits High profits result from efficiency, not monopoly power Concentration numbers shrink in global markets

Challenges to Antitrust Enforcement Mergers High-Technology Industries Globalization

Mergers and Acquisitions Involving U.S. Firms Figure 10.1 Sources: Mergerstat; and Economic Report of the President (Washington, DC: Government Printing Office, January 2001), p.41.

Top 10 Mergers from July 1998 to January 2000 Table 10.1 Source: J. Fred Weston and Samuel C. Weaver, Mergers and Acquisitions (New York: McGraw-Hill, 2001), p.3. Reproduced with permission.