Antitrust Policy and Regulation Chapter 19 Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

19-2 Antitrust Laws The purpose: Prevent monopolization Promote competition Achieve allocative efficiency Historical background Regulatory agencies Antitrust laws LO1

19-3 Antitrust Laws Sherman Act 1890 Clayton Act 1914 Outlaws price discrimination Prohibits tying contracts Prohibits stock acquisition No interlocking directorates Federal Trade Commission Act 1914 Wheeler-Lea Act 1938 Celler-Kefauver Act 1950 LO1

19-4 Antitrust Policy: Issues and Impacts Issues of interpretation Monopoly behavior vs. Monopoly structure 1911 Standard Oil Case 1920 U.S. Steel Case 1945 Alcoa Case Relevant market 1956 DuPont Cellophane Case Issues of enforcement LO2

19-5 Effectiveness of Antitrust Laws Monopoly AT&T Microsoft Case Mergers Horizontal merger Vertical merger Conglomerate merger LO2

19-6 Mergers Automobiles Blue Jeans Autos Glass Blue Jeans Denim Fabric A C BD EF Z Y X W VU T Horizontal Merger Conglomerate Merger Vertical Merger LO2

19-7 Mergers Merger guidelines The Herfindahl Index Price fixing Price discrimination Tying contracts LO2

19-8 Industrial Regulation Natural monopoly Economies of scale Public utilities Electricity, water, gas, phone Solutions for better outcomes Public ownership Public regulation Public interest theory of regulation LO3

19-9 Industrial Regulation Commission (Year Established) Jurisdiction Federal Energy Regulatory Commission (1930)* Electricity, gas, gas pipelines, oil pipelines, water-powered sites Federal Communications Commission (1934) Telephones, television, cable television, radio, telegraph, CB radios, ham operators State public utility commissions (various years) Electricity, gas, telephones LO3 *Originally called the Federal Power Commission, renamed in 1977

19-10 Problems with Industrial Regulation Regulators establish rates to give natural monopoly “fair return” No incentive to reduce cost X-inefficiency Perpetuating Monopoly Conditions of natural monopoly can end Legal Cartel Theory of Regulation LO3

19-11 Deregulation Began in the 1970s Has produced large net benefits for consumers and society Industries deregulated include: Airlines Railroads Telecommunications Electricity LO3

19-12 Social Regulation Concerned with the conditions under which goods and services are produced Impact of production on society Physical qualities of goods Applied “across the board” to all industries LO4

19-13 Social Regulation Commission (Year Established)Jurisdiction Food and Drug Administration (1906) Safety and effectiveness of food, drugs, and cosmetics Equal Employment Opportunity Commission (1964) Hiring, promotion, and discharge of workers Occupational Safety and Health Administration (1972) Industrial health and safety Environment Protection Agency (1972) Air, water, and noise pollution Consumer Product Safety Commission (1972) Consumer Financial Protection Bureau (2011) Safety of consumer products Fairness and transparency in lending and other financial services LO4

19-14 Social Regulation Optimal level of social regulation In support of social regulation Criticisms of social regulation Two reminders There is no free lunch Less government is not always better than more LO4

19-15 United States vs. Microsoft Charged in May 1998 under the Sherman Act Accused of having a “Windows” monopoly District court findings: Used anticompetitive means District court remedy Appeals court ruling Final settlement