ECN607 – Lectureaid_8

ECN607 – Lectureaid_8 - ECN607 Managerial...

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ECN607 – Managerial Economics Study Aid: lecture 8 Introduction This module discusses government antitrust laws and regulations of business. Antitrust laws exist to ensure adequate competition and appropriate market conduct. The two primary antitrust laws are the Sherman Act of 1890 and the Clayton Act of 1914. Government regulation includes two categories – economic and social. Social regulation is the more comprehensive, as it typically covers all industries. Government Regulation The purpose of government intervention in the marketplace is to correct for wrongs or failures of the market. Strangely enough, capitalism leads to a lessening of competition. What happens as firms are successful and grow – they acquire, innovate, and take advantage of mass production and economies of scale, they merge and integrate horizontally and vertically. Soon one notices one or two industry giants and a marketplace that approaches monopoly. The purpose of antitrust legislation is to protect and increase the competitive nature of the marketplace. What would we like to see in the marketplace in terms of market performance? Static efficiency or efficient use of resources Dynamic efficiency or rapid and progressive technological innovation to promote productive efficiency Full employment of resources – no idle capacity What would we want in terms of market conduct? Pricing behavior based on profit maximization without collusion Product policy based on innovation and quality Sales promotion and advertising policy – advertising and the different avenues of advertising in
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ECN607 – Lectureaid_8 - ECN607 Managerial...

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