Government Regulation. Antitrust Policy and Regulation Chapter 28. What are Antitrust Laws?. Antitrust policy can also be called antimonopoly policy…. HISTORY IN BRIEF FOR ANTITRUST LAWS U.S. civil War (1861-1865)… after this period markets expanded which led to some firms becoming dominant.
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Antitrust Policy and Regulation
Antitrust policy can also be called antimonopoly policy….
HISTORY IN BRIEF FOR ANTITRUST LAWS
U.S. civil War (1861-1865)… after this period markets expanded which led to some firms becoming dominant.
Among these, petroleum, meatpacking, sugar, railroads, whiskey, tobacco.
Hence, word trust became synonymous with monopoly (as it is used today)
These dominant firms used questionable tactics in conducting business… and in consolidating and keeping market share… They charged higherprices… and pressured resource suppliers toprovide resources as lower prices. (sort of an Al Capone style)
These dominant firms did not do anything to protect the consumer.
There was no fair competition or in some cases, complete barrier to entry existed.
Government steps in:
Set up through legislation (Sherman being the first) alternative methods of control:
Regulatory agencies – Interstate Commerce Commission was first - 1887 directed to protect against railroad abuse
“Restraints of Trade”
Collusive price fixing
Dividing up the market
Very ineffective legislation… nothing much changed…. Dominant firms kept right on dominating….
Did bring suit again Standard Oil Ohio – controlled 80% of nation’s oil-refining.
Legislation to cure the ills of the Sherman foibles.
Set up the FTC as the watchdog for:
Price discrimination eliminated.
Tying contracts (producer requires buyer to purchase another of its products as condition for obtaining the desired product.
Acquisition of stocks of competing corporations that would lesson competition
Interlocking directorates (director of one firm on board of competing firm)
Wheeler-Lea Act 1938 – amended FTC Act on protecting consumers against false advertising.
Celler-Kefauver Act 1950- amended Clayton to include regulation of vertical and conglomerate mergers.
Difference between vertical/horizontal/conglomerate mergers
This brings government in to shut down very quickly. Many instances of price fixing through the years in U.S. But is illegal.
Common practice that rarely elicits the ire of government…
Why? Green fees and tee times!
Doesn’t really deter competition.
Unless the discriminated prices are used to obstruct entry or drive out competition.
FTC (5 member commission appointed by Pres/confirmed by Senate)
Along with the U.S. Justice Department… the enforcer for antitrust laws.
(note the separation of powers in force here….
Which branch makes the law?
Which branch enforces the law?
Which branch interprets the law
Can issue cease and desist orders
Can do ALL of this on its own initiative
What is the Wheeler-Lea Act of 1938…?
It allowed more latitude for FTC… additional policing of businesses… now FTC responsible for “deceptive acts or practices in commerce.”
Until this amendment was passed, the FTC could only restrict practices that were unfair to competitors.
Large volume buyers who might use their buying power to extract special deals,
including quantity discounts,
free promotional materials or
purchase allowances, were targeted by the Robinson-Patman Act.
The Robinson-Patman Act imposes limits on these practices without prohibiting them entirely.
The act is enforced by the Federal Trade Commission in conjunction with the Department of Justice.
Where should focus be?
Structure or Behavior.
They do! But it is very expensive and lengthy process.
Take the case to government… let government bring the case… then after verdict…if favorable… will sue for treble damages.
State most Fortune 500 companies are domiciled?
Govt accused Microsoft of maintaining monopoly of operating systems for PCs
Two courts issued a “break-up” order… but later rescinded and allowed a behavioral remedy.(in the interim… Microsoft was fined a million $$ a day for over two years).
2. More regulations higher cost to consumer
Who controls money in circulation?
Who regulates your bank deposit guarantees?
Who regulates mail-orders?Regulatory Quiz
“To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.”
Under the right conditions… competitive, free markets succeed (meaning the efficient allocation of economic resources)
For competitive, free markets to success- must have 3 things:
NEVER WILL HAPPEN!
We do not know everything
Cars and other goods release exhausts
Steel and flour mills,oil refineries, railroads…all have high initial and low incremental costs.
***Government can permit a market to allocate goods when people know of risks, private and social benefits are the same, and no industries exist with decreasing costs.
How do we keep a balance?
What drives the balance?
Governments also fail!
*People in government act to promote their interests or interests of their associates
*Businesses often use government as a shield for to help build regulation as a shield from their competitors.
Anytime “public interest” is in question, demands “public oversight”
What is a recent plea for more Regulation? What agency might be given more control?
New – usually cuts across industry lines and pursues non-economic objectives (these are the ones the book refers to as Social Regulatory Commissions)
EPA – 1971
EEOC- 1964Two categories of Federal Regulation
DES MOINES, Iowa (AP) -- Shares of Maytag and Whirlpool have fallen amid speculation that the Justice Department is going to challenge their proposed merger.
Michigan-based Whirlpool is offering $1.79 billion for rival Maytag.
The Justice Department's anti-trust division has sought more time to review the deal and the companies have agreed not to close before March 30th. There could be a decision this week.
Because………. Standard of living was continually increasing for majority of Americans… now time to assess “quality of living.”
Hence, the EEOC was given the assignment to enforce the Americans with Disability Act of 1990.
Now… think back can this be assessed with MC/MB formula?
Great equality of opportunity
cost for Coal-firing plant to put on scrubbers?
cost for Dow Chemical to stop polluting?
what is the benefit to see across the Grand Canyon
what is the benefit to having safe drinking water?
what is the benefit for having consumer products that do not cause fires when used?
Or products that do not cause death or blindness from imported Chinese products?
But………..can we continue to enjoy a higher standard of living if our environment is trashed?
examples: Mercury in lakes now
Pollutants in ozone… now
Have you flown recently? Have you shipped anything UPS?
Do you have DISH Network?
Was originally assumed the agencies would be free from political influence..
Instead, politicians have used agencies to further their careers.
68 Regulatory Agencies - ??
Government budget of 1998 said $17.2 billion spend on regulation
In year 2001 = $19.8 billion
In year 2006 = $41.4 (up from $39.5 in 2005)
2011 – http://www.heritage.org/research/reports/2011/07/red-tape-rising-a-2011-mid-year-reportWrap-Up Regulation
Regulation is costly and causes massive paperwork.
Federal Register- publishes ALL proposed and final regulations.