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 Chapter 32 Antitrust and Other Government Regulation

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I. Understanding monopoly power
    A. Society is concerned with the abuse of monopoly power which is the ability to control market activity.
   B. The economic effects of monopoly power are higher prices, a smaller quantity sold, and economic rent to owners.
    C. Measuring the amount of industry concentration
       1. Standard industrial classifications (SIC) divide industries into homogeneous concentrations such as apparel (23), male (3),
           and nightwear (2), resulting in an SIC of 2332. FOR MORE READ 1997 NAICS and 1987 SIC Correspondence Tables.
      2. Concentration ratios measure the % of total industrial activity in areas such as sales and employment for oligopoly industries 
          a. Four company industries are the most common.
          b. Evidence is mixed as to whether concentration ratios are changing .
          c. Increased inter-industry mergers and international competition make analysis difficult.
          d. Concentration rations are available from the US Census Bureau.
   D. Types of business integration (mergers)
       1. Horizontal integration results from a merger of competing companies. U.S. Steel was formed with the merger of competing
           steel companies.
       2. Vertical integration results when companies that have supply dealings merge. Standard Oil combined refineries and oil 
           transportation systems.
  E. A brief history of the merger movement
      1. The late 19th century brought trusts (controlling corporations by controlling their boards of directors) and the need
          for antitrust laws to regulate the many horizontal mergers of America's Gilded Age.
      2. The 1920's brought vertical mergers as antitrust laws had made horizontal mergers difficult
      3. The 1960's and early 1970's was the time of conglomerates, which combined unrelated businesses.
      4. The 1980's brought corporate raiders who broke up conglomerates, many using junk (high risk) bonds to finance 
          leverage (high debt) buyouts.
      5. The 1990's brought a return to mergers, many of them combining international companies.
   F.    B. Price fixing from Wikipedia
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II. Antitrust laws
      A. Sherman Antitrust Act of 1890 made monopolies and attempts to monopolize illegal. Combinations, contracts, and 
          conspiracies in restraint of trade were made illegal.
      B. Clayton Act of 1914 prohibited tying contracts (tying the purchase of product A to the purchase of product B), price 
         discrimination, and stock ownership of competitors which would substantially lessen competition.
      C. Federal Trade Commission Act of 1914 created the FTC to control deceptive business practices.
     D. Robinson-Patnan Act of 1936 made predatory pricing illegal
     E. The Wheeler-Lea Act of 1938 amended the FTC Act to make unfair and deceptive trade illegal.
      F. Celler-Kefauver Antimerger Act of 1950 made the purchase of assets of another company illegal if the purchase
         would substantially lessen competition.		 Sen. John Sherman (R—OH), the principal author of the Sherman Antitrust Act.

Wikipedia
IV. The changing role of government regulation
       A. Before there was regulation there was ANDREW JACKSON who took on the
            eastern bankersbecause he felt it had excessive power.
        B. Important regulating agencies
            1. Interstate Commerce Commission (ICC)-rails and trucking
            2. Federal Aviation Administration (FAA)-air travel
            3. Federal Communications Commission (FCC)-airways
            4. Securities and Exchange Commission (SEC)-issuers of financial instruments
                such as stocks and bonds
       C. A move toward deregulation began by Margaret Thatcher in the 1970's spread to 
            the United States and Western Europe in the 1980's.
           1. Many felt federal government regulation represents a costly and inefficient misallocation
               of economic resources. 
            2. Railways, trucking, airlines, and financial institutions were deregulated in the late
               1970's and 1980's. 
                 a. Some deregulation activities were very costly (financial institutions bailout of
                     the late 1980's)
                 b. Overall, the jury is still out on the success of deregulation.
        D. Regulators are redirecting efforts away from maintaining competition toward social
             regulation.
            1. Government regulation of industry has changed direction.
                a. International competition requires companies work together to develop technology
                    and share in its high costs.
                b. Many feel government should foster cooperation among competitors with an 
                    industrial policy.
                c. Others feel the market system should be left to direct resource (factor) allocation.
           2. Regulation protecting individuals has become more prominent.
               a. Environmental Protection Agency (EPA) protects individuals from pollution
                  (air, water, noise).
               b. Consumer Protection and Safety Commission (CPSC) protects consumers from
                   unsafe products.
               c. Food and Drug Administration (FDA) protects consumers from dangerous food,
                  drugs, cosmetics, etc.
               d. Federal Trade Commission (FTC) protects the consumer from unfair trade practices
                   such as deceptive advertising.
               e. Occupational Safety and Health Administration (OSHA) protects people while 
                   at work.
               f. Equal Employment Opportunity Commission (EEOC) attempts to eliminate
                  workplace prejudice.
               g. National Labor Relations Board (NLRB) regulates activities between business and
                   unions.
          E. Henry David Thoreau concerning Government Regulations
Red tape rising

The regulatory state is expanding sharply. But Barack Obama hints that there may be moderation ahead

from1/22/11 issue of the Economist Magazine

regulation and the Obama administration

Red tape rising 

III. Antitrust prosecutions
      A. Enforced by the antitrust division of the Justice Department
      B. THEODORE ROOSEVELT took on the corporate monopoly Trusts that control railroad rates and routes and thus destroyed small towns and farms.
      C. Rule of reason
          1. Applied by the Supreme Court in a 1911 antitrust case against Standard Oil of New Jersey and the American 
             Tobacco Company
          2. Court stated that behavior must be unreasonable in a competitive sense and anti-competitive effects must be
              demonstrated. 
          3. Both companies were found guilty. 
          4. The Court ruled that bigness alone was not against the law in1921 when it ruled that U.S. Steel was not a 
              monopoly even though it controlled 50% of the market.
          5. Bigness alone was prosecuted by the Supreme Court in 1945 as it broke up Alcoa because it controlled
              90% of the aluminum market.
     D. Tight enforcement, which began in 1914, ended in the early 1980's.
     E. For more information read
          1. Rule of reason - Wiki
          2. Executive Summary Of The Anti Trust Laws

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