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16. Antitrust Regulation. Regulation Antitrust Law & Cases. Public Interest Theory. regulate to achieve an efficient use of resources monopolies are inefficient oligopolies may be inefficient. Regulating a monopoly. Natural Monopoly Distribution of electricity. P, cost. ATC. $10. MC.

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16 antitrust regulation
16. Antitrust Regulation
  • Regulation
  • Antitrust Law & Cases
public interest theory
Public Interest Theory
  • regulate to achieve an efficient use of resources
    • monopolies are inefficient
    • oligopolies may be inefficient
regulating a monopoly
Regulating a monopoly
  • Natural Monopoly
    • Distribution of electricity
slide4

P, cost

ATC

$10

MC

D

Q (households)

slide5

P, cost

consumer

surplus

deadweight loss

$20

ATC

$10

MC

MR

D

Q (households)

4 million

economic profit

public interest
public interest
  • P = MC
  • maximize consumer surplus
  • but involves a loss for firm
    • set P = ATC
slide7

P, cost

consumer

surplus

deadweight loss

ATC

$15

$10

MC

D

Q (households)

6

8 million

slide8
allow firm to earn set rate of return
    • P = ATC
  • firm may exaggerate costs to earn monopoly profit
antitrust laws
Antitrust Laws
  • Sherman Antitrust Act 1890
    • collusion in restraint of trade illegal

-- price fixing illegal

    • monopolizing or colluding is felony
clayton act 1914 amendments
Clayton Act, 1914 & amendments
  • prohibits
    • price discrimination
    • tying, exclusion contracts
    • mergers

that substantially lessen competition

celler kefauver act 1950
Celler-Kefauver Act, 1950
  • Further restrictions on mergers
    • Horizontal
    • Vertical
    • Conglomerate
  • U.S. govt. has become more permissive about mergers over time
some cases price fixing
Some cases: price fixing
  • 1927 Trenton Potteries
    • all price fixing illegal
  • 1961 GE
    • executives fined & jailed
  • 1996 ADM
    • fines to company
attempts to monopolize
Attempts to monopolize
  • 1911 Standard Oil
    • ordered to sell of holdings
  • 1920 U.S. Steel
    • not guilty: big not bad
  • 1945 Alcoa
    • guilty: too big
merger rules
Merger rules
  • Justice Dept. uses HHI index to evaluate mergers
  • if 1000 <HHI < 1800
    • increase of > 100 challenged
  • if HHI > 1800
    • increase of > 50 challenged
example soda mergers 1986
Example: soda mergers, 1986
  • Coca-cola & Dr. Pepper
  • market for carbonated soft drinks
    • HHI 2430
    • mergers increase HHI by 800
  • merger blocked
example united usair 2003
Example: United & USAir, 2003
  • Justice Dept. also opposed to merger
    • merger plans dropped
  • TWA & American merger allowed
other large mergers allowed
Other large mergers allowed:
  • Exxon and Mobil (1998)
  • AOL and Time Warner (2000)
  • Chrysler and American Motors (1987)
  • Chrysler and Daimler (1998)
u s vs microsoft
U.S. vs. Microsoft
  • The Case
    • Microsoft monopoly in PC operating systems
    • used predatory pricing with web browsers
    • other anticompetitive practices

-- tying, exclusionary contracts

slide19
Microsoft response
    • innovation too fast for monopolies
    • browser worked w/ operated system, not separate
    • penalized for making superior product
slide20
The ruling
    • 1999 judge ordered breakup

-- Windows vs. other software

-- Microsoft appealed 2000

    • settlement 11/2001

-- no breakup

-- Microsoft agree to code of conduct &

to reveal some source code

    • European courts still pursuing their case