Economics Chapter 7 section 3 Antitrust, Economic Regulation, and Competition• Antitrust activity – Government efforts

aimed at preventing monopoly and promoting competition in markets where competition is desirable.

• U.S. Antitrust Activity• 1. Promote the market structure that

will lead to greater competition, and • 2. Reduce anticompetitive behavior.

Antitrust laws

• Antitrust laws attempt to promote socially desirable market performance.

• Sherman Antitrust Act of 1890 outlawed the creation of trusts, restraint trade, and monopolization.

• A trust is any firm or group of firms that tries to monopolize a market.

The Clayton Act of 1914

• Law was passed to outlaw certain practices not prohibited by the Sherman Act and to help government stop a monopoly before it developed.

The Federal Trade Commission (FTC) Act of 1914

• Established a federal body to help enforce antitrust laws.

• FTC has five full-time commissioners assisted by a staff of mostly economists and lawyers.

Merger and Antitrust

• Way to reduce competition• A merger is the combination of two

or more firms to form a single firm.• Federal antitrust officials approve

or deny proposed mergers• Officials consider the merger’s

impact on the share of sales by the largest firms in the industry.

Continued

• Few firms account for a relatively large share of sales in the market (more than ½) any merger increases share may be challenged.

Federal guidelines

• Horizontal mergers-involve firms in the same market, such as a merger between competing oil companies.

• Nonhorizontal merger-include all other types of mergers. Hold greater interest for antitrust officials.

Flexible Merger Policy

• A merger of american companies to compete against foreign competition.

• E.I. airlines

Two Views of Government RegulationsPublic Interest• Regulation promotes social welfare

by reducing the price and increasing the output when a market is served most efficiently by one or just a few firms.

• Special Interest- well-organized producer groups expect to profit from government regulation by persuading public officials to impose restrictions that these groups attract.

Deregulations

• A reduction in government control over prices and firms entry in previously regulated markets, such as airlines and trucking.

• Ex. airlines