ANTITRUST POLICY REGULATION Instructor Zhanar Dessyupova MPA

ANTITRUST POLICY & REGULATION Instructor: Zhanar Dessyupova, MPA

Major topics Ø Antitrust defined Ø The history of Antitrust laws Ø Examples of antitrust cases Ø Exemptions from antitrust regulation

Questions? ØWhat is Competition? ØWhat is Trust? ØWhat is Monopoly? ØWhat is Oligopoly? ØWhat is Antitrust laws?

Industrial organization Ø Economic analysis of the market is based on 3 key concepts: 1) Structure (concentration, product differentiation, entry barriers) l 2) Conduct (or behavior) l 3) Performance l

Structure Ø Concentration – number of firms in the market and how sales are distributed among them Ø Product differentiation – a strategy in which one firm product is distinguished from competing products by means of its design, services, quality, location, etc Ø Entry barriers – describe the ease with which a new firm can enter an industry

Conduct Ø Conduct refers to decisions made by firms in regard of price, quantity, advertising, research and development, etc 2 states of conduct: competition and collusion Explicit collusion – when firm form a cartel Tacit collusion – achievement of mutual understanding without open communication

Performance Ø Efficiency – allocation of resources within given state of technology Ø Technical progress – an efficiency with which an industry develop new and better production methods and products

ANTITRUST POLICY AND REGULATION Ø Antitrust Policy – laws and government actions to promote competition and prevent monopoly Ø Competition should be primary mechanism to produce good economic results

THE ANTITRUST LAWS Historical Background • Trusts – dominant firms during the 187080 s formed several industries controlled by a single decision group (Monopoly) • Monopoly Pricing seeks to maximize revenue by producing less output at higher prices • Regulatory Agencies created to control: • Natural Monopolies

THE ANTITRUST LAWS Sherman Act of 1890 • Section 1 - Restraint of Trade illegal • Section 2 – Monopolization is a Felony • Treble Damages – 3 x damage award

THE ANTITRUST LAWS Clayton Act of 1914 • Section 2 - Price Discrimination illegal if not justified on costs differences and when it reduces competition • Section 3 - Tying Contracts illegal when one needs to buy another product as a condition of obtaining desired products

THE ANTITRUST LAWS Clayton Act of 1914 • Section 7 – Stock Ownership of other firms illegal if it results in less competition • Section 8 – Interlocking Directorates, situations where a director of one firms is also a board member of a competing firm – in large corporations where the effect would be a reduction of competition

THE ANTITRUST LAWS Federal Trade Commission Act of 1914 • Established FTC • Holds Hearings on Complaints

THE ANTITRUST LAWS Celler-Kefauver Act of 1950 • Strengthened Clayton Act Regarding Asset Ownership in Competing Firms • Anticompetitive Mergers Illegal No Matter How Accomplished

THE ANTITRUST LAWS Issues of Interpretation • Monopoly Behavior vs. Structure • Standard Oil Case - 1911 • U. S. Steel Case – 1920 • Rule of Reason • Alcoa Case - 1945 The Relevant Market • Du Pont Cellophane Case (innocent – flexible packaging materials)

THE ANTITRUST LAWS Effectiveness of Antitrust • Monopoly – Microsoft Case • Mergers • Merger Types • Horizontal Merger • Vertical Merger • Conglomerate Merger • Price Fixing • Tying Contracts

TYPES OF MERGERS Business Level Finished Goods AUTOS A B T U GLASS C V D W BLUE JEANS E X Raw Materials Business Level F Y Z DENIM FABRIC

TYPES OF MERGERS Finished Goodsr of AUTOS A B T U GLASS BLUE JEANS C V e d. U g er an e m rs T nt a Th lie se ALF p p. D pre E NT. su re IZO ER OR ERG H M W X Raw Materials Y Z DENIM FABRIC

TYPES OF MERGERS Finished Goods AUTOS A B T U C D The merger of suppliers F and Z represent a VERTICAL MERGER. GLASS BLUE JEANS V W E X Raw Materials F Y Z DENIM FABRIC

TYPES OF MERGERS Finished Goods AUTOS A T GLASS BLUE JEANS B C D E Merging unrelated firms represents a Y U V W X CONGLOMERATE MERGER. Raw Materials F Z DENIM FABRIC

Exemptions from Antitrust Ø Congress has granted certain industries and business activities exemptions: l l l Labor unions Export associations Agricultural cooperatives Regulated industries Professional sport teams Joint research and development ventures