Antitrust Policy & Regulation If the slide has a green background: you are responsible for content If the slide has an all red background, you are not responsible for the content

What’s the Problem with Market Power? Tend to produce less Tend to produce less Charge higher prices Charge higher prices Less incentive to provide quality for the consumer Less incentive to provide quality for the consumer If the consumer is unhappy, they can….? If the consumer is unhappy, they can….?

Trusts DEF: A combination of firms or corporations formed by a legal agreement  Especially in order to reduce competition  Standard Trust – came after Standard Oil

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

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

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

B.Cases 1.Standard Oil case (1911) – broke-up. 2.U.S. Steel case (1920) – ‘rule of reason’ by Supreme Court that unreasonably restrain trade. 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.

In an out-of-court settlement, AT&T divested itself into 22 regional phone- operating companies in In an out-of-court settlement, AT&T divested itself into 22 regional phone- operating companies in 1982.

Other cases…

Microsoft Case in US 02/11/ case timeline 02/11/ case timeline 02/11/ /11/35212 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. 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. 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. A court settlement approved in 2002 and a consent decree curbing some of its practices saved Microsoft A court settlement approved in 2002 and a consent decree curbing some of its practices saved Microsoft

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. 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. 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. 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 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. 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. 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. AT&T -2011, Dec -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. 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.iPhone

And the deal’s end leaves T-Mobile, the weakest of the four national operators, with an uncertain future. 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. 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.Federal Communications CommissionFederal Communications Commission

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

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