1. Ch. 30 Antitrust Policy & Regulation

2. A. Antitrust (anti-monopoly) laws 1. Sherman Act of 1890
2. Clayton Act of 1914
3. Federal Trade Commission Act
-- From Ch 22, Monopolists tend to produce less and charge more.
-- Regulatory Agencies control economic behavior (Dept of Justice, Fed Trade Comm)
-- Sherman Act outlawed collusive price fixing and monopolies.
-- Strengthened the Sherman Act.
-- FTC, with Justice Dept., to investigate unfair competitive practices.

3. 1. Standard Oil case (1911) – broke-up.
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.

4. Other cases…

5. In an out-of-court settlement, AT&T divested itself into 22 regional phone-operating companies in 1982.
AT&T’s deal to buy T-Mobile USA for $39 billion is shaping up to be a heated regulatory battle. It would create the nation’s largest cellular carrier. Lawmakers are already denouncing the deal, saying it will reduce competition in an already consolidated industry.

6. Countries with Antitrust Laws shown in red

7. C. Mergers 1. Horizontal 2. Vertical 3. Conglomerate
-- Horizontal: merger of two competitors that sell similar products in the same
geographic market. Examples are Chase & Chemical Bank, Exxon & Mobile.
-- Vertical: firms at different stages of production process. Examples are PepsiCo with
Pizza Hut, Taco Bell, and KFC.
-- Conglomerate: not horizontal or vertical, different firms in different geographic areas.
-- Merger Guidelines: The Federal gov’t has loose guidelines based on the Herfindahl
Index (ch 23), measure of concentration is the sum of squared percentage
market shares of firms within industry.
-- Herfindahl Index: is there are four firms, each with 25% market share, the index #
is 2,500 ( ). A pure monopoly has index of 10,000 (1002)

8. Effectiveness of Antitrust Laws
Types of Mergers
Automobiles
Blue Jeans
Conglomerate Merger
Blue
Jeans
Autos A B C D E F T U V W X Y Z
Glass
Denim
Fabric
Horizontal Merger
Vertical Merger
-- Most Vertical mergers are approved by regulators.

9. Transaction value (in mil. USD)
Top 10 M&A deals worldwide by value (in mil. USD) from 2000 to 2010:
Rank
Year
Purchaser
Purchased
Transaction value (in mil. USD) 1
2000
Fusion: America Online Inc. (AOL)[23][24]
Time Warner
164,747 2
Glaxo Wellcome Plc.
SmithKline Beecham Plc.
75,961 3
2004
Royal Dutch Petroleum Co.
Shell Transport & Trading Co
74,559 4
2006
AT&T Inc.[25][26]
BellSouth Corporation
72,671 5
2001
Comcast Corporation
AT&T Broadband & Internet Svcs
72,041 6
2009
Pfizer Inc.
Wyeth
68,000 7
Spin-off: Nortel Networks Corporation
59,974 8
2002
Pharmacia Corporation
59,515 9
JP Morgan Chase & Co[27]
Bank One Corp
58,761 10
Technofist Inc.
Goldspark IT Solution PVT LTD, Inc
N/A 11
2008
Inbev Inc.
Anheuser-Busch Companies, Inc
52,000

10. D. Industrial Regulation. 1. Natural Monopoly 2. X-inefficiency
-- There are situations that are economically beneficial to have a monopoly.
-- A natural monopoly occurs when ‘economies of scale’ are so extensive that a single
firm can supply the entire market at a lower cost than competing firms could.
They are rare, but conditions exist for public utilities.
-- X-inefficiency is the failure to produce any specific output at the lowest average
(and total) cost possible.

11. E. Deregulation – started in 1970’s. F. Social Regulation
Commission
(Year Established) Jurisdiction
* Food & Drug Safety & effectiveness
Administration (1906) of food, drugs, & cosmetics
* Equal Employment Hiring, promotion, & discharge
Opportunity Comm (1964) of workers
* Occupational Safety & Industrial Health & safety
Health Admin (1971)
* Environmental Protection Air, water, and noise pollution
Agency (1972)
The main
Federal
Regulatory
Commissions
providing
social
regulation
-- “…deregulation of formerly regulated industries is contributing more than $50 billion
annually to society’s well-being through lower prices, lower costs, and
increased outputs.” McConnell Brue, 2008
-- The textbook lists industries of airlines, railroads, and trucking, but not banking.
-- “It is simply far too soon to declare deregulation either a success or failure.”
McConnell Brue, 2008
-- California’s wholesale electricity prices were deregulated, but not retail rates, leading
to the Enron debacle in 2001, prompting Governor Davis’ recall.