EC 201 10-29-08 - • Antitrust laws o Sherman Act 1890...

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EC 201 10-29-08 Study 9+10 most and 8 a bit too Regulation: trucking, airlines, railroads – restrictions on entry → less competition ~ higher prices Deregulation 1970s +1980s –lower prices If industry can be competitive, don’t regulate w. entry restrictions Regulation better: safety, occupational health, environment Regulation of natural monopoly o ATC ↓ throughout entire range of output o 1 firm has lower unit cost than any group of smaller firms o In fact, nat. monopoly probably rare o But if there is nat. monopoly o If ATC↓, MC<ATC o Perf. Comp. : P=MC o If P=ATC, zero econ. Profit o Perf. Comp.-zero profit by market forces o Here, zero profit by govt. agency setting price o “guaranteed rate of return” regulation- guarantee normal return- zero econ. Profit reduced incentive to control cost
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Unformatted text preview: • Antitrust laws o Sherman Act 1890- prohibits monopoly, monopolization, price fixing Standard Oil 1911- 33 pieces- S.O New Jersey- Exxon- S.O. NY- Moil American Tobacco 1911- 16 pieces ALCOA 1945- 3 pieces AT+T 1982/1984- 9 pieces- Lucent, Verizon o After Sherman Act- other laws, Clayton Act 1914 Also prohibited: - interlocking directorates- prohibits multiple board of director positions Tie-in sales- Microsoft 1999- using op. sys. Monop. To get mkt. power in browser Price-discrim., if hurts competition Predatory pricing-sell at loss to put competitor out of business →monopoly • In practice, predatory pricing difficult- prey may fight back • Mergers- problem for competition: horizontal merger, 2 companies in same industry...
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EC 201 10-29-08 - • Antitrust laws o Sherman Act 1890...

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