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Regulation on Natural Monopolies
Natural Monopolies are often regulated with Industrial regulations. Sometimes prices are adjusted by the Federal or state government to achieve more efficiency and protect society from firms' abuse of monopolistic power. Regulations typically include restricting a firm's output to earn a fair return or setting a firm's charging price to their average total cost so the firm earns a normal profit. -
Sherman Act of 1890
This act basically declared monopolies and collusion with competitive companies to be illegal. It claimed that people who conspire to create monopolies are guilty of a felony. Though this act was a good start towards the regulation and prevention of monopolies, the wording was not entirely clear on which specific actions were legal and which were not. -
Food and Drug Administration
The FDA is an example of social regulation because it produces laws to protect consumers and it influences a wide range of companies. This association is responsible for monitoring and regulating product quality and safety, manufacturing processes, and ethics of the food, drugs, and cosmetics industries. -
Standard Oil Case
This is an example of Monopoly behavior interpretation. Standard Oil was accused of being monopolistic because it limited competition and abused their power. The Standard Oil company was then split apart not because it was structured like a monopoly, but because it acted like one. -
Federal Trade Commission Act of 1914
This act created the Federal Trade Commission to enforce antitrust laws and promote competition among firms. It gave the FTC power to investigate firms independently or at the request of someone or another company that feels they've been harmed by a firm's unfair practices. The FTC was officially established on March 15, 1915. -
Clayton Act of 1914
This act redefined the legality lines mentioned in the Sherman Act. The Clayton Act prohibits price discrimination, tying contracts, interlocking directorates, and the acquisition of stocks with the intent to lessen competition. -
Problems with Industrial Regulation / Interstate Commerce Commission
ICC industrial regulation of railroads created a conflict when trucking competition arose. The increased competition of the growing trucking industry reduced the need for a regulatory commission on railroad monopolies, but the ICC, instead of removing regulation, simply added similar restrictions to the major trucking companies. This only continued to create inefficiencies and negative consequences for consumers and the monopolies until the ICC was disassembled in 1996. -
Wheeler-Lea Act of 1938
This act added to the responsibilities of the Federal Trade Commission. It allowed the FTC to regulate "unfair and deceptive sales practices" in large firms to protect consumers. -
Alcoa Case of 1945
The Alcoa Case in 1945 raised opposition and question about whether firms should be charged as monopolies based on their structure or their behavior. The court decided in the Alcoa case that the control of a significant portion of a product market is illegal, not just monopolistic behavior. Previously in the US Steel Case, the court established that monopolistic behavior was the deciding factor in assessing the guilt of a monopoly. These opposing decisions created conflict. -
Celler-Kefauver Act of 1950
This act clarified Section 7 of the Clayton Act by prohibiting all firm merges that would significantly decrease competition whether it was accomplished by acquiring all the firm's stock or their physical assets. In this way, the Celler-Kefauver Act promoted competition among firms. -
DuPont Cellophane Case of 1956
This is an example that shows relevant market interpretation. The power of a monopoly changes depending on what is considered relevant to the market concerning the monopoly in question. In the DuPont Cellophane Case, the Court decided that even though DuPont controlled 100 percent of the cellophane market, the firm was not a monopoly because only 20 percent of the flexible packaging material market was controlled by DuPont. -
Issues of Enforcement
There are several issues of enforcing antitrust legislation. How strictly antitrust laws are enforced is one of the major disputes. On one extreme, monopolies are strictly regulated to increase allocative efficiency and benefit society to the fullest. On the other extreme, monopolies are loosely regulated and the "laissez-faire" perspective allows firms to sort out their own problems and allows long-run competition processes to take their course. -
Deregulation
US Congress decided to deregulate airline, trucking, banking, railroad, natural gas, television, telecommunications, and other industries to increase efficiency and consumer benefits such as lower costs and a higher degree of safety. -
Legal Cartel Theory of Regulation
The legal cartel theory explains how politicians may protect certain firms from competition and ensure them a profit legally through legislation and policies. They simply call it "regulation". -
Environmental Protection Agency
The EPA is an example of social regulation because it holds companies responsible for protecting the environment and the health of the public directly and indirectly. The EPA produces legislation that limits water and air pollution as well as protects animals and plants. -
Federal Hazardous Substances Act
This is an example that displays Criticisms of Social Regulation. The CPSC sometimes writes laws without fully understanding the issue they are addressing and bases their decisions on limited evidence or information. For instance, their broad Federal Hazardous Substances Act along with other legislation produced around the same time covers a much too broad group of products to be as useful to the public as intended. -
Effectiveness of Antitrust Laws on Merger Guidelines
The Herfindahl Index is used to establish loose merger guidelines. The US Government may oppose a horizontal merge if the HI value of the firm will increase significantly after the merger is complete. Antitrust laws are not very effective in determining merger guidelines. -
Effectiveness of Antitrust Laws on Mergers
The US antitrust laws on mergers is for the most part, effective. The FTC has threatened several companies with consequences when large firms have decided to merge horizontally. Vertical mergers are not as restricted as horizontal and conglomerate mergers are generally unrestricted. -
Effectiveness of Antitrust Laws on Price Fixing
US Government legislation is very effective in regulating and prohibiting price fixing. For a firm to be charged guilty of price fixing, only evidence that collusion or scheming occurred needs to be presented. Evidence of harm to another firm or person is not necessary. -
Effectiveness of Antitrust Laws on Monopolies
Antitrust Laws are fairly effective in regulating and preventing harm from monopolies. Monopolies are much more heavily regulated than other firm market structures like oligopolies or perfect competition due to the high level of power and impact monopolies possess.
