Chapter 27 Regulation & Antitrust Policy
The federal regulatory agency that has jurisdiction over labor markets is
the Equal Employment Opportunity Commission
The first legislation enacted to control the creation and growth of monopoly in the U.S. was
the Sherman Antitrust Act
The theory that regulators often end up adopting the views of the regulated is known as
the capture hypothesis
The scope of the government's role as regulator of natural monopolies has increased with the expansion of natural monopolies in the electricity, natural gas, and telecommunications industries.
False
When firms engage in creative response to regulations, this amplifies the regulation's effects.
False
The Supreme Court has generally considered a firm to be an illegal monopoly under the Sherman Act if
Both B and C are required for a firm to be considered a monopoly. (it has monopoly power in the relevant market. it has acted to acquire or maintain monopoly power.)
Which of the following is a provision of the Sherman Act?
Forbids restraint of trade and attempts to monopolize markets
Which of the following is an explanation of the capture theory?
People who have been in an industry are most likely to be asked to be regulators of the industry.
Which of the following is an example of economic regulation?
Rate regulation of natural monopolies
Which antitrust law has two main provisions, one against conspiring with others to restrict competition and the other making it a felony to monopolize or attempt to monopolize?
Sherman Act
Which of the following statements explains why the marginal cost pricing rule results in an economic loss for a natural monopoly?
The ATC curve is downward sloping; therefore, marginal cost is lower than average total cost
Which of the following is not a key antitrust law?
The Contestable Markets Act
A firm complains that another firm's advertising is misleading. The firm would send its complaint to
The Federal Trade Commission
Prices of tickets for seats on commercial passenger planes are typically in the hundreds of dollars, whereas trips can be made by automobile at much lower cost. Accident rates per person per trip in the airline industry are considerably lower than auto accident rates per person per trip. Based on these facts, discuss how regulatory costs and benefits may help to explain why government regulations require children to be placed in safety seats in automobiles but not on commercial passenger planes.
The expected benefit of using child safety seats in automobiles is much higher than the expected benefit of using them on commercial passenger planes.
Which of the following is an explanation of a feedback effect?
When products have too many warning labels, consumers may not read any of them.
One consequence of asymmetric information in the used-car market, if left unresolved, is the higher probability of
a declining quality of used cars in the market
A natural monopoly exists when
a firm's long-run average cost curve is downward sloping at the point where it intersects the market demand curve.
Asymmetric information refers to a situation in which
a producer has product information that the consumer lacks
Research into genetically modified crops has led to significant productivity gains for countries such as the United States that employ these techniques. Countries such as the European Union member nations, however, have imposed controls on the import of these products, citing concern for public health. Given the situation, the European Union's regulation of genetically modified crops is
a social regulation
Average cost pricing by regulated monopolies
allows the firm to make a "fair" rate of return.
A violation of the Sherman Act requires
behavior that indicates intent to monopolize
Asymmetric information in a market transaction occurs when there is unequal knowledge possessed by the
buyer and the seller
In 2003, the U.S. government created a "Do Not Call Registry" and forbade marketing firms from calling people who placed their names on this list. Today, an increasing number of companies are sending mail solicitations to individuals inviting them to send back an enclosed postcard for more information about the firms' products. What these solicitations fail to mention is that they are worded in such a way that someone who returns the postcard gives up protection from telephone solicitations, even if they are on the government's "Do Not Call Registry." In what type of behavior are these companies engaging? Explain your answer.
creative response behavior. Firms legally satisfy the terms of the regulation but evade its intent
A bank in Austin, Texas, has allowed its state banking license, under which it had been regulated by the Federal Deposit Insurance Corporation, a U.S. bank regulator, to expire. It has switched to a federal banking license, under which it is now regulated by the Office of the Comptroller of the Currency, another bank regulator. Do these regulators subject the bank to social or economic regulation? These regulators subject the bank to
economic regulation because they regulate only the activities of banks
Suppose that a business has developed a very high-quality product and operates more efficiently in producing that product than any other potential competitor. As a consequence, at present it is the only seller of this product, for which there are few close substitutes. This firm
is not in violation of U.S. antitrust laws because there has not been any "willful acquisition or maintenance of monopoly power" in the relevant market.
Which of the following is not an issue in enforcing antitrust laws?
marginal cost pricing
An unregulated natural monopolist will produce to the point where
marginal revenue equals marginal cost
The legal system typically defines monopoly by looking at a firm's
market share
A local cable company, the sole provider of cable television service, is regulated by the municipal government. The owner of the company claims that she is normally opposed to regulation by government, but asserts that regulation is necessary because local residents would not want a large number of different cable crisscrossing the city. The owner is defending the regulation by the city because
regulation will prevent other competing firms from entering the market
Rate of return pricing requires a natural monopolist to
set a price that allows a competitive return on investment
Suppose technological change occurs so that a regulated firm could produce the product at substantially lower costs. Further, the regulatory agency requires the firm to lower prices to consumers, but the reduction in price is less than the reduction in costs so that profits for the firm increase too. This would be evidence in support of
the share-the-gains, share-the-pains theory of regulation
The primary purpose of economic regulation is
to control the price that regulated enterprises are allowed to charge
Using the United States as a whole would be inappropriate as the relevant geographic market when an antitrust case involved
two homebuilders
Research into genetically modified crops has led to significant productivity gains for countries such as the United States that employ these techniques. Countries such as the European Union member nations, however, have imposed controls on the import of these products, citing concern for public health. The European Union's regulation of genetically modified crops is an example of
share-the-gains, share-the-pains hypothesis, if they have genuine health concerns.