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