Week 5 antitrust policy and regulation

What is social regulation?

it affects most if not all segments of society and impacts producers when dictating the design in the nature of products.

What are the limitations of the concentration ratio method?

- sometimes it is difficult to split local and national markets (huge share local but not national) - concentration ratios do not take it to accounts competition among industries - this method does not consider world trade - Concentration ratios show only the market share of the leading corporations not their actual power

Oligopoly characteristics also include:

-Companies in an industry produce either identical or differentiated products -All companies in an industry have a significant market share -Some barriers prevent potential newcomers -Some companies have a sizable market share as a result of inner economic growth others have large market share from joining with small corporations.

Monopolistic competition differs from monopoly competition by

-Firms differentiate products not so much the price is the actual physical appearance. -Product differentiation provides companies of some monopoly power which is not possible for a firm under pure competition. - firms can leave and enter industry -each company has a small market share

What does the concentration ratio method ask us to do?

1. Choose the four largest firms in a given industry 2. Summarize the sales of those companies 3. Determine the percentage of their Sales in total industry sales

What exists when a single firm can supply the entire market at a lower unit cause then could a number of smaller competing firms?

A natural monopoly, such as electricity water gas telephone and cable TV providers.

What case was found guilty of violating the Sherman act? The company agreed to separate into 22 regional phone companies but was allowed to preserve its long distance service operations.

AT&T Case of 1982

What case contradicted the ruling of the U.S. Steel Case and is now the cause of policy favoring the US Steel approach where behavior not structure distinguishes "good vs bad monopolies"?

Alcoa case of 1945, The Supreme Court held that alcoa's monopoly power (holding 90% of the aluminum ingot market) violated antitrust laws even though the firm had broken no laws.

What kind of efficiency occurs when price equals marginal cost or when a firm allocate the right amount of resources to a product?

Allocative efficiency

What are the two measures of industry concentration?

Concentration ratio and HerFindahl index

What refers to the degree in which industries are controlled by their biggest firms?

Concentration. This tells us the actual market performance of these industries in terms of how vigorously rival firms compete with each other.

What mergers are joining a firms in and related industries for example a firm that produces dog food to merge with a firm that produces air Chris to create a special canine experience?

Conglomerate mergers. The government allows this type of merger

In a monopolistic firm, the long run will wash out economic profit because?

Despite some barriers other competitors will enter The industry and safe and off the excess demand

What question arose from the standard oil case of 1911?

Does every monopoly break the law by virtue of its existence, or only those monopolies created through anti-competitive means?

Who enforces social regulation and what is the effect?

Federal and state governments in for social regulation it's best to protect workers and Citizens decreases pollution and promotes consumer safety. At It's worse it is costly to society, inefficient and lacking in attention to the balance between marginal cost and marginal benefit.

What are merges that join firms providing similar products in the same geographic market?

Horizontal mergers. The herfindahl index value for a monopoly is 10,000, if the projected index is higher than 1,800 the govn't will block the merger

What are the three types of mergers?

Horizontal vertical and conglomerate

What is a government regulation of prices settled by the firms in particular industries?

Industrial regulation which applies to natural monopolies

What market structure has Industries that are dominated by a few large companies these companies operate independently in making managerial decisions?

Oligopoly

What kind of efficiency occurs when the price equals minimum average total cost or when resources are combined in a minimum cost-combination basis?

Productive efficiency. A firm demonstrates productive efficiency if it manufactures a product in the least expensive way possible.

The government protect society from national Annapolis by ensuring either of what two things?

Public ownership or public regulation of the prices charged by the monopolist

What are the five antitrust laws that serve as the framework for trust and monopolistic behavior regulation in the United States?

Sherman act 1890, Clayton act & Federal trade commission Act 1914, Wheeler-Lea Act 1938, Celler-Kefauver Act 1950

What is the difference between social regulation and industrial regulation?

Social regulation focuses on the conditions under which a good is produced the impact of the production of that good on society and the quality of the good it self. Social regulation applies to many more industries then does industrial regulation.

What is the first case that shaped the way we interpret antitrust codes?

Standard oil case of 1911. The Supreme Court found standard oil guilty of monopolizing the petroleum industry through anti-competitive actions. Standard oil was split into several firms.

What act amended section 7 of the Clayton act which prohibits firms from occurring the stock of competitors if such action would reduce competition but does not prevent firms from merging by buying plants/equipment of their competitors -it prohibits all mergers no matter how they occur including those form through acquisition of physical assets

The Celler-Kefauver Act of 1950

Which act forbids the possession of stocks of competing corporations, if such possessions lowers competition -prohibits the creation of interlocking directorates, in which the directors of one firm serve on the board of a competing firm

The Clayton Act of 1914

Which law prohibits price discrimination when it reduces competition and when it arises for reasons other than the need to adjust to production cost -Purpose exclusive or time contract in which a producerOccurring one product agrees to buy other products from the same producer

The Clayton Act of 1914

Which act established the government agency tasked with imposing the Clayton Act and other antitrust laws, and investigates inappropriate competitive practices on its own initiative or at the request of injured firms.

The Federal Trade Commission Act of 1914

Which act prohibits any contract, trust or conspiracy to restrict trade or commerce - prohibits monopolization - states every individual who tries to monopolize any part of trade is guilty of a misdemeanor

The Sherman Act of 1890

In 2000 Microsoft was found guilty of violating what act? After appealing In 2002, the solution was to add _______ _________ rather than the division of the company.

The Sherman Act; behavioral restrictions

The DuPont Cellophane Case of 1956 was a monopoly case that caused the supreme court to find...

The firm was not in violation of antitrust laws holding that the market for flexible packaging materials was brought in school including waxing paper the lunar for you and other materials, DuPont's market share was relatively small amounting to only 20%.

The theory of public interest of regulation states that

The goal of industrial regulation is to allow the public to receive the lower-cost benefits of a natural monopoly while preventing a decline in output.

How was the herfindahl index calculated?

The sum of the squared market shares of each firm in an industry.

What act gave the FTC additional power to protect the public from unscrupulous practices in treat such is false or misleading advertising and false product presentation?

The wheeler-Lea Act of 1938

What are antitrust laws?

They prevent anticompetitive behaviors such as price fixing, establishing tying contracts and forming mergers that could dominate the market.

What case of 1920 answered the question formed from standard oil case of 1911, establishing that not all monopolies are illegal?

U.S. Steel Case of 1920. The supreme court ruled that some monopolies may be legal if there are hard reasons for their formation(the rule of reason). Court declared US steel was a monopoly but it was innocent because it had not taken any actions against competitors.

What mergers are joining of firms in the same industry at different stages of the production process? for example a firm producing flower commercial with a baking company

Vertical mergers, which are usually allowed unless they occur between companies in highly concentrated industries.