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Problems With Industrial Regulation
An unregulated firm has incentive to cut costs to increase profit. A regulated firm has no incentive to do so because they are stuck at a fair return price. Another issue is that regulation can continue the life of the monopoly even if technology or other factors would end the conditions of natural monopoly. The interstate commerce commission's regulation of railroads made sense in the 1800s and early 1900s. But, around the 1930s, trucking would have began to compete with the railroad industry. -
Criticisms of Social Regulation
Criticisms of social regulation have been around since social regulation begun and will be as long as regulation exists. For example, high regulation on pollution standards are made against global warming when it cannot be perfectly proven that pollution causes global warming. Critics say that in this case there is excessive regulation over businesses because they are regulating things that increases costs, but doesn’t have sound proofing behind it. -
Effectiveness of Antitrust Laws on Merger Guidlines
The government passed merger guidelines based loosely on the herfindahl index in order to keep one or two companies from monopolizing the industry. Companies can still merge, but if their index increases dramatically the government will out an end to it. -
Effectiveness of Antitrust Laws on Mergers
Based off of the merger guidelines, the government will see if they will let the companies merge. These checks allow the government to control a companies power to become a monopoly by determining if they can or cannot merge with a specific person. -
Effectiveness of Antitrust Laws on Price Fixing
Antitrust laws are extremely diligent for determining and charging companies who use price fixing. Price fixing will result in antitrust action by the government because if the government can prove conspiracy for fixed prices, the action is illegal. For example, when a court found that Sotheby’s and Christie were guilty of conspiring over 6 years to set the same commission rates at auctions, they were found guilty by the courts. -
Legal Cartel Theory
The regulation of monopolies have produced this theory, which claims that practical politicians supply regulation to local, regional, and national firms who fear the impacts of competition on their survival. Thus, this theory will create a legal monopoly that guarantees a profit, similar to a cartel. This would keep potentially harmful produces from entering a market that they could take over. -
Sherman Act
Outlawed restraint of trade as well as monopolization. Collusive price fixing and other anti competitive actions are illegal. Private parties, state attorney generals, the DOJ, and the FTC can sue for violations. The Sherman act begun the past of economic regulations as an aim to break up existing monopolies but it has grown to so much more. -
One Social Regulation (FDA)
Social Regulation is concerned with the conditions that goods and services are produced and how they affect people versus industrial regulation that is focused on regulation price rates in natural monopolies. Social Regulation is a far more across the board idea than industrial regulation.
The Food and Drug Administration was created in 1906 as a means to protect public health by approving pharmaceutical drugs, medical devices and by monitoring our nation's food supply. -
Monopoly Structure vs Monopoly Behavior (2)
The Standard Oil Case questioned whether or not it was a monopoly.Their anti competitive actions represented a monopoly structure and broken into firms.This made people wonder if all Monopolies violated the Sherman Act.The US Steel Case of 1920 proved size wasn’t the issue but illegal acts against competitors. Alcoa was violating the Sherman Act, it had too much power in its market. percentage it has in the market (structure) or on illegal barriers to entry/ability to gain power (behavior)? -
Clayton Act
The Clayton adds on to the Sherman act in a way that is focused more on preventing Monopolies where as the Sherman Act was more focused on breaking up current monopolies. The Clayton act prevented unethical purchasing and price discrimination. -
Federal Trade Commissions Act
This Act created the 5-member Federal Trade Commission which works with the US Justice Department. It outlaws unfair methods of competition and outlaws unfair acts of practice that affect commerce, seeks monetary redress and relief for conduct that is harmful to consumers, gather information and data to conduct investigations. Essentially, it gave the FTC the power to investigate unfair firm practices. -
Regulation on Natural Monopolies
In the US, public (or industrial) regulation is used to promote better economic outcomes. Government commissions regulate the prices charged by natural monopolies.Competition is uneconomical where there is a natural monopoly because economies of scale wouldn’t be achieved. The Federal Energy Commission (1930), the Federal Communications Commission (1934), and state public utility commissions all work to prevent the natural Monopoly from charging Monopoly prices and harming consumers. -
Wheeler- Lea Act
This Act giver the FTC the power and responsibility to protect consumers from false or misleading advertising. Thie made unfair deceptive sale practices illegal. -
Issues of Enforcement
Throughout regulation history there have been many questions as to how antitrust laws should be enforced. Somepoeple believe that the enforcement is weak and should be changed, and others believe it just need updated. -
Relevant Market Interpretation
In the Alcoa Case of 1945 the government took a very narrow look on the market and decided that Alcoa was violating the Sherman Act by focusing on the fact that they held over 90% of their market, but the DuPont Cellophane case of 1956 the court took a broader stance and ruled that the company did not reflect a monopoly because even though they had 100% of the cellophane market they did not own the rest of the relevant market of flexible packing materials. -
Celler-Kefauver
This act was passed by congress to prevent mergers and acquisitions that would reduce competition bu having a large corporation buy out others. -
Degradation
Degradation was the push for less government control in some industries. It was determined that less economic control by way of government regulations could lead to more economic competition thus increasing productivity and effectiveness in companies and would lower prices. -
Effectiveness of Antitrust Laws on Monopolies
The government had been fairly lenient with monopolies int eh past, but the government charged AT&T against the Sherman Act for engaging in anti competitive practices to maintain its monopoly. AT&T then divested into 22 different companies. Also the courts found Microsoft guilty of abusive monopolistic behavior, and Microsoft was prohibited from engaging in these practices. The Anti trust laws on Monopolies has been fairly effective. They decrease the power of these companies. -
Social Regulation (ADA)
The Americans Disabilities Act of 1990 was a social regulation created to focus on companies having reasonable accommodations for qualified employees with disabilities and proper service for customers with disabilities
