Regulation & Deregulation Chapter 7 Section 4

GOVERNMENT MARKET INTERVENTION 1. Goal Keep firms from controlling the price & supply of important goods 2. Antitrust Powers 6. Recently Deregulated Industries (1) watch & regulate industry (2) stop formation of cartels or monopolies (3) break up existing monopolies Airlines, trucking, banking, railroads, natural gas, television broadcasting GOVERNMENT MARKET INTERVENTION Complaints Against Microsoft Guidelines for Mergers Must prove that merger would lower costs & consumer prices or lead to a better product Requiring manufacturers to include Microsoft browser with Microsoft operating system & predatory pricing Complaints Against AT&T Using legal monopoly in local service to take control over markets for long-distance phone calls & communications equipment

Rewrite each sentence correctly using the key term Price fixing is the practice of setting the market price below cost for the short term to drive competitors out of business. Predatory pricing

Perfect competition means that the government no longer decides a company’s market role and pricing. Deregulation

A monopoly occurs when a company joins with another company to form a single firm. merger

What is the purpose of antitrust laws? Antitrust laws are designed to encourage competition in the marketplace.

Under what conditions will the government approve a merger? The government approves mergers only when the combined company will not be able to exert unfair control over markets or prices.

How does predatory pricing hurt competition? Predatory pricing usually leads to one or more firms being forced out of a market, limiting consumer choice and competition and resulting in higher prices.

How did deregulation change the banking and air travel industries? Banking deregulation led to the Savings & Loan Crisis of the 1980s, as banks had more freedom to make riskier investments. Airline deregulation led to some mergers and some firms dropping out of the business but also to lower air fares for consumers.

Why did the government once regulate the banking, trucking, & airline industries? These industries were considered natural monopolies. The government regulated these and other industries to prevent businesses from using market power to control prices and output.

Why does the government believe it has the right to intervene in markets to promote competition? The government intervenes because competition is an important part of the free enterprise system and should be protected.