Regulation of Market Power AG BM 102

Introduction Sometimes performance is bad & gov’t tries to correct it Started in 1887 with Interstate Commerce Act regulating railroads Sherman Antitrust Act Clayton Antitrust Act Lots more since

Economic Power Comes from a desire to gain increased technical efficiency and reduced costs Desire for market power Desire for social & political power

Regulations May be divided into regulation of structure Regulations of conduct Regulations of performance Enforcement an issue Some areas not addressed

Regulations of Structure Monopolization provisions of Sherman Act – offense requires possession of monopoly power in relevant market & willful acquisition & maintenance of that power – 75% market share magic number Acquisition provisions of Clayton Act – can’t acquire another firm if it will substantially lessen competition – hasn’t been enforced

Meat Packer’s Consent Decree & Packers & Stockyards Act packers can’t own stockyards, cold storage plants, terminal railroads Handle fish, vegetables, fruits, canned goods, fresh cream, milk Operate retail meat markets

Regulations of structure Interlocking directorate provisions of Clayton Act

Regulations of Conduct Regulations of Collusive or Restrictive Conduct Regulation of Unfair Trade Practices Other Conduct Regulations

Regulations of Collusive or Restrictive Conduct Restraint of Trade provisions of Sherman Act Federal Trade Commission Act – unfair trade practices – esp. price fixing Clayton Act – can’t sell on condition that can’t sell competitors stuff – full line forcing

Regulation of Unfair Trade Practices Big item for food industry Robinson Patman Act – 1936 – no price discrimination unless justified by costs of serving buyers Lots of state laws

Other Conduct Regulation Federal Trade Commission Truth in Packaging Truth in Lending Definitions of terms – juice vs. juice products

Regulations of Performance Cases where competition won’t work but like the structure Public utilities – natural monopolies Competition has too much instability – production ag.

Enforcement in Food Lots of price fixing & allocation of markets – esp. dairy & bakery – school bread contracts – low differentiated products Price fixing only an issue where price competition occurs Traditionally no horizontal mergers allowed – now very lax- Dean Foods Suiza

Not regulated well Differentiated products Only truth in advertising – no monopolization by differentiation monopsonies

Concluding Comments Based on structure > conduct > performance model Evolves over time – lately pretty lax Market power is real – some regulation is necessary