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Economics Chapter 7 section 3 Antitrust, Economic Regulation, and Competition

Explore the history and impact of antitrust laws in the U.S., including the Sherman Act of 1890 and the Federal Trade Commission Act of 1914. Learn about mergers, competition, and government regulations affecting various industries.

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Economics Chapter 7 section 3 Antitrust, Economic Regulation, and Competition

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  1. Economics Chapter 7 section 3 Antitrust, Economic Regulation, and Competition • Antitrust activity – Government efforts aimed at preventing monopoly and promoting competition in markets where competition is desirable. • U.S. Antitrust Activity • 1. Promote the market structure that will lead to greater competition, and • 2. Reduce anticompetitive behavior.

  2. Antitrust laws • Antitrust laws attempt to promote socially desirable market performance. • Sherman Antitrust Act of 1890 outlawed the creation of trusts, restraint trade, and monopolization. • A trust is any firm or group of firms that tries to monopolize a market.

  3. The Clayton Act of 1914 • Law was passed to outlaw certain practices not prohibited by the Sherman Act and to help government stop a monopoly before it developed.

  4. The Federal Trade Commission (FTC) Act of 1914 • Established a federal body to help enforce antitrust laws. • FTC has five full-time commissioners assisted by a staff of mostly economists and lawyers.

  5. Merger and Antitrust • Way to reduce competition • A merger is the combination of two or more firms to form a single firm. • Federal antitrust officials approve or deny proposed mergers • Officials consider the merger’s impact on the share of sales by the largest firms in the industry.

  6. Continued • Few firms account for a relatively large share of sales in the market (more than ½) any merger increases share may be challenged.

  7. Federal guidelines • Horizontal mergers-involve firms in the same market, such as a merger between competing oil companies. • Nonhorizontal merger-include all other types of mergers. Hold greater interest for antitrust officials.

  8. Flexible Merger Policy • A merger of american companies to compete against foreign competition. • E.I. airlines

  9. Two Views of Government RegulationsPublic Interest • Regulation promotes social welfare by reducing the price and increasing the output when a market is served most efficiently by one or just a few firms. • Special Interest- well-organized producer groups expect to profit from government regulation by persuading public officials to impose restrictions that these groups attract.

  10. Deregulations • A reduction in government control over prices and firms entry in previously regulated markets, such as airlines and trucking. • Ex. airlines

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