The robinson patman act the robinsonpatman act was

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Unformatted text preview: eet from an old, tiny, run-down motel, and the old motel ends up going out of business. Was the hotel chain employing “unfair methods of competition” or not? The Robinson-Patman Act The RobinsonPatman Act was passed in 1936 in an attempt to decrease the failure rate of small businesses by protecting them from the competition of large and growing chain stores. At that time in our economic history, large chain stores had just arrived on the scene. 08 (186-221) EMC Chap 08 11/17/05 5:27 PM Page 201 Copies of Judge Thomas Penfield Jackson’s ruling against Microsoft in November of 1999 were in high demand. The case was one of the major antitrust cases of the twentieth century. What would a company have to do to be guilty of antitrust violations? They were buying goods in large amounts and were sometimes being offered price discounts from their suppliers. The chain stores began to pass on the price discounts to their customers. The small businesses were not being offered the price discounts and thus found it increasingly difficult to compete with the chain stores. The Robinson-Patman Act prohibited suppliers from offering special discounts to large chains unless they also offered the discounts to everyone else. Many economists believe that rather than preserving and strengthening competition, the Robinson-Patman Act limited it. The act, they say, seemed more concerned about a particular group of competitors (small businesses) than about the process of competition. The Wheeler-Lea Act The Wheeler-Lea Act, passed in 1938, empowered the Federal Trade Commission (FTC), a government agency, to deal with false and deceptive acts or practices by businesses. Major actions by the FTC in this area have involved advertising that the agency has deemed false and deceptive. The Issue of Natural Monopoly Instead of applying antitrust laws to natural monopoly, often what government does is impose some kind of regulation on the natural monopolist. For example, instead of allowing the natural monopoly to charge any price it wants, government often sets the price that the natural monopoly can charge. Alternatively, sometimes government specifies a certain rate of profit the natural monopoly can earn. There are often unintended effects of government regulation of natural monopolists. For example, suppose government states that the natural monopolist can only charge a price of $2 above costs. If the natural monopolist knows that it can always charge a price of $2 higher than costs, it will have little, if any, incentive to keep its costs down. In the end, consumers may end up paying high prices because the natural monopolist knows that no matter what its costs are, it can always charge a price $2 higher (than costs). Similarly, if a natural monopoly is guaranteed a certain rate of profit, it will have little incentive to hold down its costs. Are Antitrust Laws Always Applied Properly? People are inclined, perhaps, to believe that when the government enforces the antitrust laws, it does so properly. Government may be seen as riding into the market on a white horse, preventing monopolies from running roughshod over consumers. In reality, the record of government in this area is mixed. Sometimes government, Section 2 A Monopolistic Market 201 08 (186-221) EMC Chap 08 11/17/05 5:27 PM Page 202 Why So Much for Such a Short Ride? ?????????????????? I t is easy for new firms to enter some markets and difficult for them to enter others. Difficulty in entering a market is usually caused by the existence of some barrier to entry. Of course, not all barriers to entry are the same. One kind is created through legal means. For example, when the government specified that no firm can compete with the U.S. Postal Service in the delivery of first-class mail, it effectively created a legal barrier to entering the business of delivering first-class mail. Suppose you go to New York City. You visit Rockefeller Center and Madison Square Garden; you take a tour of the Empire State Building and the Statue of Liberty; you go to a Broadway play at night. In your travels around New York City, you notice taxicabs picking up and delivering people. You wonder what you or anyone else would need to do to enter the taxicab market in New York City. Let’s list the things that sound reasonable. You would need a car and a driver’s license. Perhaps the city of New York would want to make sure that you did not have a criminal record, so you might need to pass a personal background check. In reality, the Taxi and Limousine Commission in New York City requires that you also have a taxi license, called a taxi medallion. It is similar to a business license: you need it to lawfully operate a taxicab business in New York City. In 2003 the price of a taxi medallion was $220,214. The high price of a taxi medallion acts as a barrier to entering the through its enforcement of the antitrust laws, promotes and protects competition, and sometimes it does not. In 1967, the Salt Lake City–bas...
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This document was uploaded on 01/16/2014.

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