Regulation and Antitrust

Regulation and Antitrust - Regulation and Antitrust...

Info iconThis preview shows pages 1–14. Sign up to view the full content.

View Full Document Right Arrow Icon
    Regulation and Antitrust Economic Regulation:   Government regulations aimed at  controlling prices, output, market entry and exit and product  quality. Antitrust Activity:  Government activity aimed at preventing  monopoly and fostering competition (where competition is  desirable).
Background image of page 1

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

View Full DocumentRight Arrow Icon
    Natural Monopoly Long-run average costs fall throughout the “relevant  range” of production (i.e., when they cross market  demand). Occurs when Fixed Costs are large and marginal costs  are low.
Background image of page 2
    D MR AC
Background image of page 3

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

View Full DocumentRight Arrow Icon
    In this situation, competition is not desirable because  it results in high costs (duplication of large fixed  costs).   An unregulated monopoly, however, is also  inefficient. So one solution is to allow a monopoly but then  government can  regulate price.
Background image of page 4
    What is the optimal way to regulate?  Want to set  price that maximizes Total Surplus (economic  efficiency): MARGINAL COST PRICING:  P = MC Note:  This is the competitive outcome
Background image of page 5

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

View Full DocumentRight Arrow Icon
    There is a problem with using marginal cost pricing in  a Natural Monopoly. To see the problem we need to think about what MC  looks like for a Natural Monopoly and then consider  the implications of Marginal Cost pricing: 
Background image of page 6
    D MR AC
Background image of page 7

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

View Full DocumentRight Arrow Icon
    D MR AC Since AC is falling, MC < AC  Average-Margin Relationship
Background image of page 8
    D MR MC AC
Background image of page 9

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

View Full DocumentRight Arrow Icon
    D MR MC AC Unregulated Monopoly Outcome Q M P M
Background image of page 10
    D MR MC AC Unregulated Monopoly Outcome Q M P M
Background image of page 11

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

View Full DocumentRight Arrow Icon
    D MR MC AC Unregulated Monopoly Outcome Q M P M Profit
Background image of page 12
    D MR MC AC Marginal Cost Pricing Outcome P R Q R
Background image of page 13

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

View Full DocumentRight Arrow Icon
Image of page 14
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 35

Regulation and Antitrust - Regulation and Antitrust...

This preview shows document pages 1 - 14. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online