Chapter 13: Antitrust and Regulation

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Chapter 13 Antitrust and Regulation
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Antitrust policy

• Sherman Act (1890)
• Outlaws contracts and conspiracies in restraint
  of trade
• Forbids monopolization
• Does not describe what is prohibited

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Antitrust policy

• Sherman Act (1890)
• Outlaws contracts and conspiracies in restraint
  of trade
• Forbids monopolization
• Does not describe what is prohibited
• Clayton Act (1914)
• Bans price discrimination designed to limit
  competition
• Prohibits tying and exclusive dealing contracts

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Antitrust policy

• Sherman Act (1890)
• Outlaws contracts and conspiracies in restraint
  of trade
• Forbids monopolization
• Does not describe what is prohibited
• Clayton Act (1914)
• Bans price discrimination designed to limit
  competition
• Prohibits tying and exclusive dealing contracts
• Federal Trade Commission Act (1914)
• Established the FTC to administer antitrust laws

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Antitrust enforcement

• 1890-1914 little enforcement

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Antitrust enforcement

• 1890-1914 little enforcement
• Through 1945 rule of reason size alone was
  not sufficient evidence of an antitrust violation

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Antitrust enforcement

• 1890-1914 little enforcement
• Through 1945 rule of reason size alone was
  not sufficient evidence of an antitrust violation
• 1945 Alcoa case per se rule

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Antitrust enforcement

• 1890-1914 little enforcement
• Through 1945 rule of reason size alone was
  not sufficient evidence of an antitrust violation
• 1945 Alcoa case per se rule
• 1980s return to rule of reason

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Antitrust enforcement

• 1890-1914 little enforcement
• Through 1945 rule of reason size alone was
  not sufficient evidence of an antitrust violation
• 1945 Alcoa case per se rule
• 1980s return to rule of reason
• 1990s stricter enforcement

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Antitrust enforcement

• 1890-1914 little enforcement
• Through 1945 rule of reason size alone was
  not sufficient evidence of an antitrust violation
• 1945 Alcoa case per se rule
• 1980s return to rule of reason
• 1990s stricter enforcement
• 2000 onward less strict enforcement

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Herfindahl index

• Herfindahl index sum of squared market shares
  (as percentages) (varies from 0 to 10,000)

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Herfindahl index

• Herfindahl index sum of squared market shares
  (as percentages) (varies from 0 to 10,000)
• Justice Department guidelines
• lt 1000 highly competitive
• Between 1000 and 1800 moderately competitive
• gt 1800 highly concentrated

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Global antitrust

• Growing volume of international trade makes
  antitrust regulation more complex (due to
  different laws in different countries)

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Other regulation

• Economic regulation
• Antitrust laws
• Laws affecting price and output
• Social regulation
• Health and safety standards
• Workplace safety
• Environmental standards
• Etc.

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Costs and benefits of regulations

• Cost estimates are in the range of 400 - 800
  billions
• Benefits gains to society

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Deregulation

• airlines and trucking 1970s
• Banking 1980s

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SEC

• Securities and Exchange Commission created in
  1934
• Requires reporting of annual financial reports in
  standard format

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SEC

• Securities and Exchange Commission created in
  1934
• Requires reporting of annual financial reports in
  standard format
• Sarbanes-Oxley Act of 2002
• Auditing and consulting services must be provided
  by different firms.
• Required the CEO to sign financial statements