Regulation and Deregulation Today

Promoting Competition The forces of the marketplace generally keep business competitive with on another and attentive to consumer welfare. But sometimes the government uses regulation. Regulation is a set of rules or laws designed to control business behavior. Antitrust legislation defines monopolies and gives government the power to control them.

Trusts A trust is a group of firms combined in order to reduce competition in an industry. (A trust is similar to a cartel). To keep trusts from forming, the government regulates business mergers. A merger is the joining of two firms to form a single firm.

History of Antitrust Legislation During the late 1800s, a few larger trusts, such as Standard Oil, dominated the oil, steel, and railroad industries in the United States. Sherman Antitrust Act (1890) This gave government the power to control monopolies and to regulate business practices that might reduce competition. Standard Oil gained control of 90% of of U.S. oil industry.

Ida Tarbell and The History of Standard Oil

Antitrust Legislation Today Sometimes the U.S. government has used antitrust legislation to break up larger companies. The government might allow a large dominant firm to remain intact because it is the most efficient producer (economies of scale). The responsibility for enforcing antitrust legislation is shared by the Federal Trade Commission (FTC) & the Department of Justice.

Ensuring a Level Playing Field Price fixing occurs when businesses agree to set prices for competing products. Market allocation occurs when competing businesses divide a market amongst themselves. ◦By staying out of each other’s territory, the businesses develop limited monopoly power in their own territory, allowing them to charge higher prices.

Ensuring a Level Playing Field Predatory pricing occurs when businesses set prices below cost for a time to drive competitors out of a market.

Protecting Consumers When the government becomes aware that a firm is engaged in behavior that is unfair to competitors or consumers, it may issue a cease and desist order. A cease and desist order requires a firm to stop unfair business practice. The government also enforces a policy of public disclosure, which requires businesses to reveal product information to consumers.

AgencyCreatedPurpose Food and Drug Administration (FDA) 1906Protects consumers from unsafe foods, drugs, or cosmetics; requires truth in labeling of these products Federal Trade Commission (FTC) 1914Enforces antitrust legislation, unfair business practices, including deceptive advertising Federal Communication Commission (FCC) 1934Regulates the communication industry, including radio, TV, cable, and telephone services Securities and Exchange Commission (SEC) 1934Regulates the market for stock and bonds to protect investors Environmental Protection Agency (EPA) 1970Protect human health by enforcing environmental law regarding pollution and hazardous materials Consumer Product Safety Commission 1972Sets safety standards for thousand of types of consumers products; issues recalls for unsafe products