Chapter 13: Antitrust and Regulation

1. Chapter 13: Antitrust and Regulation

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

3. 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

4. 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

5. Antitrust enforcement • 1890-1914 – little enforcement

6. Antitrust enforcement • 1890-1914 – little enforcement • Through 1945 – “rule of reason” – size alone was not sufficient evidence of an antitrust violation

7. 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

8. 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

9. 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

10. 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

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

12. Herfindahl index • Herfindahl index = sum of squared market shares (as percentages) (varies from 0 to 10,000) • Justice Department guidelines • < 1000 – highly competitive • Between 1000 and 1800 – moderately competitive • > 1800 – highly concentrated

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

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

15. Costs and benefits of regulations • Cost estimates are in the range of $400 - $800 billions • Benefits – gains to society

16. Deregulation • airlines and trucking – 1970s • Banking – 1980s

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

18. 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