Chapter 24 Antitrust Policy and Regulation

Antitrust History Post Civil War “trusts” were formed (oil, railroads) to monopolize. Regulatory agencies were formed for natural monopolies Antitrust laws were passed for other markets Sherman Act (1890) Contracts in restraint of trade Price fixing Monopolies Clayton Act (1914) Price discrimination Tying contracts Acquisition of stock of competing firms Interlocking directorates Exclusive dealing Federal Trade Commission Act (1914) Created the FTC Robinson - Patman Act (1936) Protects small businesses Wheeler – Lea Act (1938) False advertising Celler-Kefauver Act (1950) Anti-merger act – merger by stock acquisition

Case Procedure Terms Rule of Reason – not all monopolies are illegal if it was obtained naturally (U.S. Steel, 1920) Per Se – if you meet the definition you are a monopoly no matter how you got there (ALCOA, 1945) Consent decree – I didn’t do it and I won’t do it ag ain Treble Damages – 3 times the amount asked Typical Case Identify the type of merger Vertical – suppliers Horizontal – competitors Conglomerate – unrelated Identify the relevant market Broad – Restaurants Medium – Fast Food Restaurants Narrow – Hamburger Fast Food Restaurants Calculate the Concentration measures Concentration Ratio 0 – perfect competition 1 – 50 monopolistic competition 50 – 99 oligopoly 100 – monopoly Pre-merger Herfindahl Index Post-merger Herfindahl Index What is the market structure? What should you do? Challenge if the Post-merger HI is above 1800 and the increase is 100+

Industrial Regulation Natural Monopoly – Public Utilities such as cable, water, sewage, electricity, gas, and local telephone Alternatives Public ownership Public regulation Price Marginal cost pricing Average cost pricing Profit Output

Social Regulation Concerned with Conditions of production (worker safety) Impact on society (environment) Products themselves (Food and medicine)