ECON 2 Chapter 18

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Antitrust Policy and Regulation

Antitrust Policy

The use of the antitrust laws to promote competition and economic efficiency

Industrial Regulation

The older and more traditional type of regulation in which government is concerned with the prices charged and the services provided to the public in specific industries.

Social Regulation

Regulation in which government is concerned with the conditions under which goods and services are produced, their physical characteristics, and the impact of their production on society.

Sherman Act

The Federal antitrust act of 1890 that makes monopoly and conspiracies to restrain trade criminal offenses. Cornerstone of antitrust legislation

Clayton Act

The Federal antitrust act of 1914 that strengthened the Sherman Act by making it illegal for firms to engage in certain specified practices

Tying Contracts

A requirement imposed by a seller that a buyer purchase another (or other) of its products as a condition for buying a desired product; a practice forbidden by the Clayton Act

Interlocking Directorates

A situation where one or more members of the board of directors of a corporation are also on the board of directors of a competing corporation; illegal under the Clayton Act

Federal Trade Commission Act

The Federal act of 1914 that established the Federal Trade Commission

Cease-And-Desist Orders

An order from a court or government agency to a corporation or individual to stop engaging in a specified practice

Wheeler-Lea Act

The Federal act of 1938 that amended the Federal Trade Commission Act by prohibiting and giving the commission power to investigate unfair and deceptive acts or practices of commerce (such as false and misleading advertising and the misrepresentation of products)

Celler-Kefauver Act

The Federal act of 1950 that amended the Clayton Act by prohibiting the acquisition of the assets of one firm by another firm when the effect would be less competition

Standard Oil Case

A 1911 antitrust case in which this firm was found guilty of violating the Sherman Act by illegally monopolizing the petroleum industry. As a remedy the company was divided into several competing firms

U.S. Steel Case

The antitrust action brought by the Federal government against this firm in which the courts ruled (in 1920) that only unreasonable restraints of trade were illegal and that size and the possession of monopoly power were not violations of the antitrust laws.

Rule of Reason

The rule stated and applied in the U.S. Steel case that only combinations and contracts unreasonably restraining trade are subject to actions under the antitrust laws and that size and possession of monopoly power are not illegal

Alcoa Case

A 1945 case in which the courts ruled that the possession of monopoly power, no matter how reasonably that power had been used, was a violation of the antitrust laws; temporarily overturned the rule of reason applied in the U.S. Steel Case

DuPont Cellophane Case

The antitrust case brought against this firm in which the Supreme Court ruled (in 1956) that while this firm had a monopoly in the narrowly defined market for cellophane, it did not monopolize the more broadly defined market for flexible packaging materials. It was thus not guilty of violating the Sherman Act

Microsoft Case

A 2002 antitrust case in which this firm was found guilty of violating the Sherman Act by engaging in a series of unlawful activities designed to maintain its monopoly in operating systems for personal computers; as a remedy the company was prohibited from engaging in a set of specific anticompetitive business practices

Horizontal Merger

The merger into a single firm of two firms producing the same product and selling it in the same geographic market

Vertical Merger

The merger of one or more firms engaged in different stages of the production of a final product

Conglomerate Merger

The merger of a firm in one industry with a firm in another industry (with a firm that is not a supplier, customer, or competitor)

Per Se Violations

Collusive actions, such as attempts by firms to fix prices or divide a market, that are violations of the antitrust laws, even if the actions themselves are unsuccessful.

Natural Monopoly

An industry in which economies of scale are so great that a single firm can produce the product at a lower average total cost than would be possible if more than one firm produced the product.

Public Interest Theory of Regulation

The presumption that the purpose of the regulation of an industry is to protect the public (consumers) from abuse of the power possessed by natural monopolies

Legal Cartel Theory of Regulation

The hypothesis that some industries seek regulation or want to maintain regulation so that they may form or maintain a legal cartel

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