Lecture 24 - Announcements No Class Monday MT grades are up...

Info icon This preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
Announcements No Class Monday!! MT grades are up. HW for ch. 15 due Monday (read the chapter). Key for MT2 will be up on Scholar on Tuesday Lectures: Ch 15 and start Ch 11 today and Weds, 12 on Weds-Friday, and 13 on Friday-Monday.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Government Agencies that Enforce Antitrust Laws Federal Trade Commission (FTC) A federal regulatory group created by Congress in 1914 to investigate the structure and behavior of firms engaging in interstate commerce, to determine what constitutes unlawful “unfair” behavior, and to issue cease-and-desist orders to those found in violation of antitrust law. Antitrust Division (of the Department of Justice) is also empowered to act against violators of antitrust laws. It initiates action against those who violate antitrust laws and decides which cases to prosecute and against whom to bring criminal charges (FTC cannot bring criminal charges). In general, the government does not like “anti-competitive” behavior. They want to make sure that industries don’t move too far from the “perfectly competitive” outcome. Two organization are responsible for this.
Image of page 2
What do the FTC and DOJ do? These two organizations keep an eye on all the industries in the US to make sure they are not doing anything “anticompetitive”, like: “Price-fixing” – when competitors get together and decide to raise the prices (remember cartels?) “Tying contracts” – making a customer buy something from someone else in order to be allowed to buy form you. “Exclusive dealing” – not letting your customers buy from a competitor. The FTC and DOJ also regulate mergers to keep
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
REGULATION OF MERGERS (when firms combine) The government (FTC and DOJ) looks closely at all mergers, especially in oligopolistic markets. The primary screening tool they use to determine whether or not to challenge a merger is the HHI. If a merger is challenged, the government and the merging firms each have teams of lawyers and economists that argue their case. Herfindahl-Hirschman Index (HHI) A mathematical calculation that uses market share figures to determine whether or not a proposed merger will be challenged by the government.
Image of page 4
THE ROLE OF GOVERNMENT Calculation of a Simple Herfindahl-Hirschman Index for Four Hypothetical Industries, Each with No More Than Four Firms PERCENTAGE SHARE OF: HERFINDAHL- HIRSCHMAN INDEX FIRM 1 FIRM 2 FIRM 3 FIRM 4 Industry A 50 50 - - 50 2 + 50 2 = 5,000 Industry B 80 10 10 - 80 2 + 10 2 + 10 2 = 6,600 Industry C 25 25 25 25 25 2 + 25 2 + 25 2 + 25 2 = 2,500 Industry D 40 20 20 20 40 2 + 20 2 + 20 2 + 20 2 = 2,800 If the Herfindahl-Hirschman Index is less than 1,000, the industry is considered unconcentrated, and any proposed merger will go unchallenged by the Justice Department. If the index is between 1,000 and 1,800, the department will challenge any merger that would increase the index by over 100 points. Herfindahl indexes above 1,800 mean that the industry is considered concentrated already, and the Justice Department will challenge any merger that pushes the index up more than 50 points.
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
THE ROLE OF GOVERNMENT Department of Justice Merger Guidelines (revised 1984)
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern