Principles of Economics- Mankiw (5th) 322

Principles of Economics- Mankiw (5th) 322 - 332 PA R T F I...

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332 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY The antitrust laws give the government various ways to promote competition. They allow the government to prevent mergers, such as our hypothetical merger between Coca-Cola and Pepsico. They also allow the government to break up com- panies. For example, in 1984 the government split up AT&T, the large telecommu- nications company, into eight smaller companies. Finally, the antitrust laws prevent companies from coordinating their activities in ways that make markets less com- petitive; we will discuss some of these uses of the antitrust laws in Chapter 16. Antitrust laws have costs as well as benefits. Sometimes companies merge not to reduce competition but to lower costs through more efficient joint production. These benefits from mergers are sometimes called synergies. For example, many U.S. banks have merged in recent years and, by combining operations, have been able to reduce administrative staff. If antitrust laws are to raise social welfare, the
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