Antitrust and regulation

Text translation.

Translate the text from English into Russian in writing paying particular attention to the translation of the economic terms in bold as well as words and phrases relevant to the subject of the text. Read out your translation in class andintroduce the necessary corrections.

Chapter Objectives

After you have read and studied this chapter you should be able to differentiate between the various measurements of market power; discuss the different merger "waves" that have occurred in this country's-history; know the various antitrust acts and what role they played in shaping the past merger waves; have an idea of what is presently considered permissible and forbidden under the current antitrust laws; be able to broadly describe the extent and growth of economic regulation; offer some explanations for the growth of regulation, discuss the effects of economic regulation on business efficiency; and discuss the concept of block-pricing and how it affects the efficiency of production.

Chapter Review: Key Points

1 Market power exists whenever a firm can set the price of its output. (Market power and monopoly are not synonymous.) Market power builds a gap between price and marginal cost. The Lemer index of monopoly power (IMP) uses this fact to measure market power as (P - MQ/P. However, estimating MCwith accounting data is almost impossible.

2 Market concentration ratios provide some evidence of monopolization or oligopolistic power. Concentration ratios are the percentages of total sales, output, or employment in an industry controlled by a small number of the largest firms in the industry.

3 The Herfindahl-Hirschman Index (HHI) is the sum of squared market shares (ΣS²_i). Squaring places more emphasis on big firms. The Justice Department now uses the HHI as a guide to the permissibility of mergers.

4 Major difficulties are encountered in defining an industry. The existence of close consumption substitutes is one consideration; the ease with which potential competitors might enter an industry (contestability) is another. The Department of Commerce lumps firms into Standard Industrial Classifications (SICs) to try to solve this problem, but with only mixed success.

One reason for merger is to increase the scope ofa firm'soperations so that economies of scale in information, marketing, advertising, production, or financial management may be exploited. Another reason, by far the most important for policy, is that merger eliminatesbusiness rivals and facilitateseconomic concentration and market power. Increases in market power that result from merger may be reflected rapidly in higher prices for the merged companies' stock.

6 Horizontal mergers (the absorption of competitors) dominated the first major wave of mergers in the United States from 1890 until 1914. The Clayton Act outlawed most horizontal mergers, so a wave of vertical mergers (mergers that unite suppliers of raw materials or intermediate goods with processors or other firms further along the production chain) ensued until the Great Depression increased economic concentration. Merger activity died during the Great Depression, but revived in the mid-1950s where companies that were very dissimilar were merged into conglomerates. Merger activities slowed down during the 1970s, but reemerged strongly during the 1980s in a forth wave that some people describe as "the golden age of dealmaking."

7 Big firms might be justified by enormous capital requirements or substantial economies of scale. In such cases, proper public policy may take the form of regulation. The major thrust of public policy where no such justifications for bigness exist has been to encourage competition through antitrust actions.

8 Agricultural cooperatives, athletic organizations, labor unions, export trade associations, regulated industries, and insurance companies are largely exempt from antitrust action.

9 In applying the Sherman Antitrust Act, the Court has historically taken two different approaches. The rule of reason approach prohibits bad monopolies and permits reasonable restraints on trade, while the per se doctrine forbids all monopolies regardless of conduct.

10 The bulk of regulatory agencies in this country were created during three decades. The first great surge occurred during the 1930s, when policymakers attempted to buffer the violent swings in the business cycle on our economic system. Well over half of all regulatory agencies, however, came into existence in the 1960s and 1970s, and it is not obvious why regulation increased so dramatically during a period of relative prosperity and high economic growth.

11 The public interest theory of regulation focuses on some possible failures of the price system, including poor information, fraud, externalities, and monopoly power.

12 A natural monopoly involves substantial economies of scale, rendering direct competition impractical. Society has turned to regulation to prevent natural monopolies from reaping enormous profits and to move them towards socially efficient levels of output.

13 Regulating public utilities is considerably more difficult than simple theory would suggest. Major problems arise in determining the rate base, a "fair" rate of return, and allowable costs. Regulatory agencies face a difficult task in balancing the interests of consumers and utility investors.

14 The industry interest view of regulation expressed by George Stigler suggests that industries can gain from regulation, and therefore "demand" regulation from the government. As Stigler has noted, the state can, and often does, change the profitability of an industry through four main mechanisms: (a) direct taxes or subsidies, (b) restrictions on entry, (c) impacts on an industry's complementary or substitute products, and (d) direct price-fixing policies.

15 Public choice theory attributes much of the complexity of modern regulation to empire building by the heads of government agencies.

16 Direct costs of regulation arise when a firm incurs costs to comply with laws and regulations. The indirect costs of regulation are incurred in attempts to avoid or reshape regulation. The cost of hiring lobbyists to influence regulation is an example. Together, these costs amount to 5-10 percent of U.S. Gross Domestic Product. (5094 digits)

Дата добавления: 2015-07-10