authorized private lawsuits The antitrust laws are a comprehensive charter of

Authorized private lawsuits the antitrust laws are a

This preview shows page 6 - 7 out of 7 pages.

authorized private lawsuits The antitrust laws are a comprehensive charter of economic libery aimed at preserving free and unfettered competition as the rule of trade Government has various ways to promote competition and can prevent mergers, break up companies prevent companies from coordinating their activities in ways that make markets less competitive Antitrust laws have sots as well as benefits Companies merge not to reduce competition but to lower costs through more efficient joint production Synergies – benefits of lower costs Critics of antitrust laws are skeptical that the government can perform the necessary cost-benefit analysis with sufficient accuracy o Regulation Regulating the behavior of monopolists Common in the case of natural monopolies government agencies regulate their prices (electric/water companies) Government subsidizes monopolist picks up losses inherent in marginal cost pricing Regulators can allow the monopolist to charge a price higher than marginal cost o Average cost pricing leads to deadweight losses because the monopolist’s price no longer reflects the marginal cost of producing the good
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o Average-cost pricing is like a tax on the good the monopolist is selling Marginal-cost pricing as a regulatory system gives the monopolist no incentive to reduce costs o Lower costs mean higher profits o If a regulated monopolist knows that regulators will reduce prices whenever costs fall, monopolist will not benefit from lower costs o Public Ownership Rather than regulating natural monopoly that is run by a private firm, the government can run the monopoly itself Telephone, water, and electric companies, or post office Private owners have incentive to minimize costs as long as they reap part of the benefit in the form of higher profit If managers are doing a bad job of keeping costs down, firm’s owners will fire them If government bureaucrats do a bad job running monopoly, the losers are the customers and taxpayers whose only recourse is political system o Doing Nothing Often best for Government not to try to remedy the inefficiencies of monopoly pricing
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