ch13 - Chapter 13 Limiting Market Power Regulation and...

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Chapter 13 Limiting Market Power: Regulation and Antitrust . . . the one law you can’t repeal is supply and demand. WILLIAM  SAFIRE
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Monopoly Power Versus Mere Size Economies of scale Savings Through increases in quantities produced Increase in input: X% Output increase by > X% Monopoly / market power Firm - earn high profits Increase prices Keep them high 2
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Monopoly Power Versus Mere Size Monopoly power: undesirable High prices Reduce wealth of consumers Resource misallocation Threat public interest: monopoly power 3
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1. Antitrust Laws and Policies Antitrust policy Prevent Deliberate creation of monopoly Powerful firms - “anticompetitive practices” 4
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Basic antitrust laws Table 1 5 Name  Date  Major provisions  The Sherman Act 1890 Prohibits “all contracts, combinations and conspiracies in restraint of trade”  (Section 1) and monopolization in Interstate and foreign trade Section 2). The Clayton Act 1914 Prohibits price discrimination, “exclusive contracts” under which sellers prevent  buyers from purchasing goods from the sellers’ competitors, and “tying  contracts” under which a customer who wants to buy some product from a  given seller is required as part of the price to agree to buy some other product  or products from that same seller. Prohibits acquisition by one corporation of  another’s shares if these acts are likely to reduce competition or tend to create  monopoly. Prohibits directors of one company from sitting on the board of a 
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ch13 - Chapter 13 Limiting Market Power Regulation and...

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