Chapter 27 and Chapter 30
Horizontal Merger
2 firms producing the same product and selling it in the same geographic market
Standard Oil Case
A 1911 antitrust case in which Standard Oil was found guilty of violating the Sherman Act by illegally monopolizing the petroleum industry. As a remedy the company was divided into several competing firms
Alcoa Case
A 1945 case in which the courts ruled that the possession of monopoly power, no matter how reasonably that power had been used, was a violation of the antitrust laws; temporarily overturned the rule of reason applied in the U.S. Steel case
Microsoft Case
A 2002 antitrust case in which Microsoft was found guilty of violating the Sherman Act by engaging in a series of unlawful activities designed to maintain its monopoly in operating systems from personal computers; as a remedy the company was prohibited from engaging in a set of specific anti-competitive business practices
Trust
A group of corporations run by a single board of directors
Tying Contracts
A requirement imposed by a seller that a buyer purchase another (or other) of its product as a condition for buying a desired product; a practice forbidden by the Clayton Act
Interlocking Directorates
A situation where one or more members of the board of directors of a corporation are also on the board of directors of a competing corporation; illegal under the Clayton Act
Static economy
An economy in which the basic forces such as resource supplies, tech knowledge, and consumer tastes are constant and unchanging
Natural Monopoly
An industry in which economies of scale are so great that a single firm can produce the industry's product at a lower average cost than would be possible if more than one firm produced the product
Cease-and-Desist Order
An order from a court or government agency to a corporation or individual to stop engaging in a specified practice
Per Se Violations
Collusive actions, such as attempts by firms to fix prices or divide a market, that are violations of the antitrust laws, even if the actions themselves are unsuccessful
Federal Trade Commission Act of 1914
Established the Federal Trade Commission to monitor business practices, false advertising, and dishonest labeling
Implicit costs
Indirect, non-purchased, or opportunity costs of resources provided by the entrepreneur. (Included is *normal profit")
Loanable funds theory of interest
Interest rates are not set by the supply and demand for money, but the supply and demand for the amounts of money available for lending
Incentive function
Land rent has no incentive function, because the supply is fixed
Usury laws
Laws that impose an upper limit on the interest rate that lenders can charge like a price ceiling
Social Regulation
Regulation in which government is concerned with the conditions under which goods and services are produced, their physical characteristics, and the impact of their production on society. Differs from industrial regulation
Difference in interest rates
Risk, maturity, loan size, taxability
Insurable risks
Risks in which the amount of loss can be predicted and be compensated by an insurance policy
Explicit costs
The actual payments in currency that a firm makes for its factors of production and other suppliers.
DuPont Cellophane Case
The antitrust case brought against DuPont in which the U.S. Supreme Court ruler (in 1956) that while DuPont had a monopoly in the narrow defined market for cellophane, it did not monopolize the more broadly defined market for flexible packaging materials. It was thus not guilty of violating the Sherman Act
Legal Cartel Theory of Regulation
The hypothesis that some industries seek regulation or want to maintain regulation so that they may form or maintain a legal cartel
Real interest rate
The interest rate corrected for the effects of inflation
Vertical Merger
The merger of one or more firms engaged in different stages of the production of a particular final good
Conglomerate Merger
The merger of two firms operating in separate industries or separate geographic areas
Industrial Regulation
The older and more traditional type of regulation in which government is concerned with the prices charged and the services provided to the public in specific industries. Differs from social regulation
Normal profit
The opportunity cost of the entrepreneur's talents and investment. It is considered an implicit cost.
Single-tax movement
The political efforts by followers of Henry George to impose a single tax on the value of land and eliminate all other taxes.
Public Interest Theory of Regulation
The presumption that the purpose of the regulation of an industry is to protect the public (consumers) from abuse of the power possessed by natural monopolies
Rule of Reason
The rule stated and applied in the U.S. Steel case that only combinations and contracts unreasonably restraining trade are subject to actions under the antitrust laws and that size and possession of monopoly power are not by themselves illegal. Compare with per se violation
Nominal interest rate
The stated interest rate on a loan *not* corrected for inflation.
Antitrust Policy
The use of the antitrust laws to promote competition and economic efficiency
Uninsurable risks
Uncontrollable and unpredictable risks in changes in supply and demand conditions that don't qualify for an insurance policy.
Structuralists
a firm with a very high market share will behave like a monopolist -Splitting up will improve behavior and performance
Regulatory Agencies
a natural monopoly, the government established public regulatory agencies to control economic behavior
Economists consider rent
a surplus payment not necessary to ensure that land is available to the economy as a whole
equilibrium interest rate
affects the total level of investment and therefore the levels of total spending and total output
U.S. Steel Case
antitrust action against U.S. Steel Corporation in which the courts ruled (in 1920) that only unreasonable restraints of trade were illegal and that size and the possession of monopoly power were not by themselves violations of the antitrust laws
laissez-faire perspective
antitrust intervention is largely unnecessary bc long run they will come and go
Sherman Act of 1890
antitrust law makes monopoly and conspiracies to restrain trade criminal offenses Section 1: trust illegal Section 2: People who monopolize a felony
What can the government do to monopolies?
break up the monopoly into competing firms or prohibit it from engaging in specific anticompetitive business practices
Uninsurable risks sources
changes in general economic environment changes in the structure of the economy changes in government policy
active antitrust perspective
competition is insufficient in some circumstances to achieve allocative efficiency and ensure fairness to consumers and competing firms
What do usury laws do?
deny credit to low-income people subsidize high-income borrowers and penalize lenders diminish the efficiency with which loanable funds are allocated to investment and R&D projects.
antitrust laws
designed to inhibit or prevent the growth of monopolies
Clayton Act of 1914
federal antitrust law that strengthened the Sherman Act by outlaw the techniques that firms might use to develop monopoly power Section 2: no price discrimination Section 3: no tying contracts Section 7: no buying stocks of competing corporations Section 8: can't be director to multiple competing firms
Wheeler-Lea Act of 1938
federal law that amended the Federal Trade Commission Act by prohibiting unfair and deceptive acts or practices of commerce false and misleading advertising and the misrepresentation of products
Differential rents allocate
land among alternative uses.
Behavioralists
may be technologically progressive and have quality products at fair prices
Celler-Kefauver Act
no merging of physical assets with the intent of becoming a monopoly of the industry; amended the Clayton Act
Criticism of the single-tax movement
not enough revenue land is improved other income is "unearned" unfair to current owners
Supply of land is
perfectly inelastic
Interest
price paid for the use of money percentage
objective of industrial regulation
protect the public from the market power of natural monopolies by regulating prices and quality of service
Pure rate of interest
rate of interest for the use of money over a long period of time with little or no risk and uninfluenced by market imperfections
Differential rents
rent that arises owing to differences in fertility of land or productivity
Economic Rent
the price paid for the use of land and other natural resources whose total supplies are fixed
supply of loanable funds
the relationship between the quantity of loanable funds supplied and the real interest rate when all other influences on lending plans remain the same
Economic or pure profit
the total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called "above-normal profit".
Why businesses pay rent?
to cover those opportunity costs in order to secure the use of land for their particular purposes