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Published bySheila McKenzie Modified over 8 years ago
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Market Structures Regulation and Deregulation
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How firms increase Market Power Controlling prices - leading firms can form a cartel, merge, or practice: Predatory pricing by setting prices below market price (short-term) to put competitors out of business
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Government and Competition Policies that prevent firms from controlling price and supply of important goods. Anti-trust laws Trust – similar to cartel Passed by Congress – First in 1890 Monitored by FTC and Dept. of Justice To ensure competition
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Government and Competition Use of anti-trust legislation to break up trusts: John D. Rockefeller’s Standard Oil Trust (1911) American Telephone and Telegraph (AT&T) (1981) Microsoft (1999)
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Government and Competition Government has power to prevent monopolies Has power to block mergers that might reduce competition A merger occurs when a company joins with another company or companies form a single firm. Government also monitors past mergers
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Government and Competition Some mergers can benefit consumers The Justice Department and FTC now allow potential mergers a chance to prove that the merger would lower costs and consumer prices or lead to a better product.
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Deregulation Deregulation means that the government no longer decides what role each company can play in a market and how much it can charge its customers. Eliminates entry barriers and price controls. Deregulated airline, trucking, banking, railroad, natural gas, and TV broadcasting industries.
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Deregulation Problems: Airlines – deregulated by Pres. Carter in 1978 – promoted competition but allowed larger firms to compete aggressively for routes. Generally lower prices, but most airports are dominated by a single airline which often means higher fares Current problems
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