Chapter 23 econ - CHAPTER 25 Government and Product...

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CHAPTER 25 Government and Product Markets: Antitrust and Regulation Chapter 22 introduced students to the theory of perfect competition and the workings of the perfectly competitive market. Chapters 23 and 24 dealt with markets that are not perfectly competitive—specifically, with the cases of monopoly, oligopoly, and monopolistic competition. One of the great debates in economic theory and policy concerns whether or not the government should intervene in these noncompetitive market structures and, if so, what form that intervention should take. Chapter 25 addresses this debate, looking at the rationale for government intervention and the various ways that government intervenes in the market, as well as the recent trend toward reducing government intervention in certain markets. Specifically, Chapter 25 discusses the evolution of antitrust law, which aims at dealing with the anti- competitive tendencies of monopolies and other highly concentrated industries. The chapter also discusses regulation of monopolies, regulation of nonmonopolistic markets, and the rationale and recent record of deregulation. CHAPTER OBJECTIVES Upon completing this chapter, your students should be able to: 1. Explain the details of various important antitrust laws. 2. Explain why the definition of the market is important to antitrust policy. 3. Explain how antitrust officials gauge competition in a market. 4. Explain the difference between a vertical and a horizontal merger. 5. Discuss a few important antitrust cases and actions. 6. Discuss natural monopoly and ways to regulate it. 7. Discuss the various theories of regulation. 8. Identify some of the unintended effects of regulation. 9. Explain the role of technology in deregulation. KEY TERMS antitrust law • network good trust lock-in effect Herfindahl index • regulatory lag horizontal merger • capture theory of regulation vertical merger • public interest theory of regulation conglomerate merger • public choice theory of regulation 243
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244 Chapter 25 CHAPTER OUTLINE I.ANTITRUST —In Chapter 23 we learned that a monopoly produces less output, charges a higher price, and causes a welfare loss to society, relative to the perfectly competitive solution for an industry with the same revenue and cost considerations. As a result, many economists feel that government should take some action to restrict the activities of monopolies (and cartels, since they function as monopolies) and the formation of new monopolies and cartels. In this section we look at antitrust law legislation passed for the stated purpose of controlling monopoly power and promoting competition. The second section of this chapter will discuss regulation. A.Antitrust Acts —Beginning with the 1890 Sherman Act, there have been seven major pieces of legislation that constitute U.S. antitrust policy.
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This note was uploaded on 09/22/2009 for the course BUSINESS Economics taught by Professor Richard during the Fall '08 term at Florida State College.

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Chapter 23 econ - CHAPTER 25 Government and Product...

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