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Antitrust Policy and Business Regulation

by: Kerrigan Unter

Antitrust Policy and Business Regulation ECON 1011

Marketplace > George Washington University > Economcs > ECON 1011 > Antitrust Policy and Business Regulation
Kerrigan Unter
GPA 3.0
Foster, I

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Foster, I
Class Notes
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This 3 page Class Notes was uploaded by Kerrigan Unter on Monday October 19, 2015. The Class Notes belongs to ECON 1011 at George Washington University taught by Foster, I in Summer 2015. Since its upload, it has received 21 views. For similar materials see INTRODUCTION TO MICROECONOMICS in Economcs at George Washington University.


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Date Created: 10/19/15
ECON 1011 Chapter 12 Antitrust Policy and Business Regulation Antitrust Laws and their Interpretation 0 Antitrust policy policy by which government attempts to prevent the acquisition and exercise of monopoly power and to encourage competition in the marketplace 11 A Brief History of Antitrust Policy 0 The Sherman Act of 1890 outlawed contracts combinations and conspiracies in restraint of trade 0 Illegal per se actions taken by rms that are illegal in and of themselves without regard to the circumstances under which they occur 0 Rule of reason rule stating that whether or not a particular business practice is illegal depends on the circumstances surrounding the action 0 Price xing situation in which two or more rms agree to set prices or to coordinate their pricing policies 0 Horizontal merger consolidation of two or more producers of the same good or service 0 increase concentration and therefore the likelihood of collusion among the remaining rms 0 Vertical merger mergers between rms at different stages in the production and distribution of a product 12 US Antitrust Policy Today 0 Contestable open to entry by potential rivals o A large rm may be able to prevent small rms from competing but other equally large rms may enter the industry in pursuit of the high pro ts earned by the initial large rm Antitrust and Competitiveness in a Global Economy 0 Joint ventures cooperative arrangements between two or more rms that otherwise would violate antitrust laws 2 Cooperative Ventures Abroad o The US government has relaxed antitrust restrictions in some cases in an effort to make domestic rms more competitive in global competition 22 Antitrust Policy and US Competitiveness National Cooperative Research Act of 1984 NCRA provided a simple registration procedure for joint ventures in RampD The NCRA protects members of registered joint ventures from punitive antitrust penalties if the venture is later found to illegally reduce competition or otherwise act in restraint of trade Omnibus Trade and Competitiveness Act OTCA made unfair methods of competition by foreign rms and importers punishable under the US antitrust laws made dumping illegal The World Trade Organization the international organization created in 1995 to supervise world trade has established a group to study issues relating to the interaction between trade and competition policy including anticompetitive practices Regulation Protecting People from the Market Regulation government power to control the choices of private rms or individuals Regulation may constrain the freedom of rms to enter or exit markets to establish prices to determine product design and safety and to make other business decisions It may also limit the choices made by individuals 3 Theories of Regulation The public interest theory of regulation holds that regulators seek to nd market solutions that are economically efficient It argues that the market power of rms in imperfectly competitive markets must be controlled The public interest theory of regulation assumes that regulations serve the interests of consumers by restricting the harmful actions of business rms That assumption however is now widely challenged by advocates of the public choice theory of regulation which rests on the premise that all individuals including public servants are driven by selfinterest Capture theory of regulation theory stating that government regulations often end up serving the regulated rms rather than their customers Public choice theory views the regulatory process as one in which various groups jockey to pursue their respective interests 32 Consumer Protection Consumer protection laws are generally based on one of two conceptual arguments consumers do not always know what is best for them consumers simply do not have sufficient information to make appropriate choices 0 Regulation aimed at protecting consumers can bene t them but it can also impose costs It adds to the cost of producing goods and serVices and thus boosts prices It also restricts the freedom of choice of individuals some of Whom are Willing to take more risks than others 33 Deregulating the Economy 0 Public choice theory suggests that more not less regulation is often demanded by rms threatened With competition at home and abroad More and more people seem to demand environmental protection including clear air clean water and regulation of hazardous waste and toxic waste Indeed as incomes rise over time there is eVidence that the demand for safety rises


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