CHAP 14 - Regulation and antitrust laws

CHAP 14 - Regulation and antitrust laws - CHAP 14:...

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CHAP 14: CHAP 14: Regulation and Antitrust  Regulation and Antitrust  Laws Laws Olivier Giovannoni 304K: Introduction to Microeconomics Nov. 14, 
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Outline Outline 1. Theory of Government 1. Monopoly and Oligopoly Regulation 1. Regulation and Deregulation 1. Antitrust Law
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1. Theory of Government 1. Theory of Government What is the role of the government? To maintain property rights and set rules for distribution of  income (through taxation) To correct for  market failures  when the market does not naturally lead to equilibrium when there is excess supply or excess demand when the pursuit of self-interest does not lead to social interest Typical situations requiring the action of the gov’t: Externalities  (chap. 15) are situations when a person’s  action has unanticipated consequences (ex: pollution) Public goods  (chap.16) are goods enjoyed by everyone and  that cannot be charged individually (ex: defense, law and  order,  some types of transportation) Common resources  (chap 16) are resources which  everybody enjoys but which are owned by no one. (ex:  oceans, national parks) Income redistribution  (chap. 18). The market economy  creates an unequal distribution of income, which is  counterbalanced by progressive taxation –but leads to a  deadweight loss.
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1. Theory of Government (…) 1. Theory of Government (…) Here we will adopt a view of government called  public choice ”, represented on this graph. Voters and firms  demand  regulations and will  vote                          following heir best interest                          Politicians and bureaucrats  supply                          regulations in their best interest:  to                           be re-elected. So they will follow  the                          general public opinion.
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2. Monopoly and oligopoly regulation 2. Monopoly and oligopoly regulation Monopoly and oligopoly  are situations where resources  are not allocated efficiently. The gov’t has to jump in,  using regulation:  an administration determining or influencing prices,  standards, etc… (ex: price administration during WWII) antitrust laws:  laws that regulates or prohibits certain kinds of  behavior on a market –such as monopoly and oligopoly practices  (ex: microsoft trial) Consumers  will demand regulations of monopoly  situations because they make them worse off.  If politicians  follow  vox populi  to get reelected, the good laws will  be passed and everybody will be better off. This is the outcome of 
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CHAP 14 - Regulation and antitrust laws - CHAP 14:...

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