1 / 13

Eco 100 Lecture 7-3

Eco 100 Lecture 7-3. Feb 20, 2009 Regulation: Monopoly, Cartels and Mergers. Colbert on Monopoly. http://www.colbertnation.com/the-colbert-report-videos/60116/march-08-2006/the-word---monopoly. Government Regulation. Major categories Anti-competitive behavior Price Discrimination

susyd
Télécharger la présentation

Eco 100 Lecture 7-3

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Eco 100Lecture 7-3 Feb 20, 2009 Regulation: Monopoly, Cartels and Mergers

  2. Colbert on Monopoly • http://www.colbertnation.com/the-colbert-report-videos/60116/march-08-2006/the-word---monopoly

  3. Government Regulation • Major categories • Anti-competitive behavior • Price Discrimination • Collusion • Mergers/acquisitions • Deregulation • Natural Monopolies • Regulatory solutions • Deregulating where economies of scale no longer exist • Managed competition • Externalities • Pollution • Fishing, forestry, mining, oil drilling

  4. Promoting Efficiency • Goals of regulation • Efficiency in Production • Produce at least cost • Efficiency in Allocation • Value consumers place on goods = opportunity costs of resources used • Promote Technological Innovation • Regulatory incentives should promote, or at least not discourage, development and adoption of new cost saving technology

  5. Perfect Competition • Standard of comparison for all market models (optimal) • Productive efficient • Firms operate at min of LRAC or exit • Technological innovate • Innovate or die • Allocative efficient • Consumers value marginal unit at MV • Equals firm’s cost of producing marginal unit • No deadweight loss

  6. Monopoly/Cartels • Not Efficient in Production • Never operate at min of LRAC • Underutilized capacity and resources • Not Technologically Innovative • No incentive to invest in/develop new technology when you’re the only firm • Not Efficient in Allocation • P (=MV) > MR = MC • Deadweight loss

  7. Monopolistic Competition • Not Efficient in Production • Never operate at min of LRAC • Underutilized capacity and resources • Technologically Innovative • Competition with other firms provides incentive • Not Efficient in Allocation • P (=MV) > MR = MC • Deadweight loss (but not as great as Monopoly)

  8. How Has the Government Sought to Regulate Markets? • Punishing Anti-Competitive Behavior • Pricing/market tactics • Collusion • Price-fixing, restricting output • Price Discrimination • Predatory Pricing • Impose fines for AC tactics • Preventing Anti-competitive Behavior • Mergers and Acquisitions • Review by appropriate administrative agency • Divestiture/breakups • Regulating Natural Monopolies • Deregulation(sic) of Selected Industries

  9. Punishing AC Behavior • Punishing firms for behaving like a monopoly • Sherman anti-trust Act (1890) • “conspiring to fix prices or restrict output” • Clayton Act (1914) • More sophisticated price discrimination • Tie-in sales – requiring the purchase of 2nd good • Stock purchases/acquisitions • Robinson-Patman(1936) • 3rd degree price discrimination • Amendment to Clayton Act

  10. Reviewing Mergers • Primarily aimed at preventing mergers or acquisitions that reduce competition • FCC regulates communications media (newspapers, tv, telecomm, radio) • FTC and DOJ regulate the rest

  11. How do they determine whether a merger reduces competition? • Herfindahl-Hirschman Index or HHI, • measure of the size of firms in relationship to the industry • Meant to be an indicator of the amount of competition • sum of the squares of the market shares of each individual firm. • decreases in the Herfindahl index generally indicate a loss of pricing power and an increase in competition, whereas increases imply the opposite • DOJ guidelines • Mergers resulting in HHI > 1800 can be challenged

  12. Are All Mergers Equal? • Conglomerate • Merger of firms in unrelated industries • Vertical Merger • Merger of firms upstream/downstream from each other in production stream • FCC: ownership of more than 1 media type • Microsoft • Horizontal Mergers • Firms in the same industry • Telecomm industry • AT&T divestiture • Verizon/GTE merger; RBOC mergers • Would the HHI be a valid measure of competitiveness?

  13. Another Look At Mergers • Courtesy of Stephen Colbert • http://video.aol.com/video-detail/the-new-atandt/792090619

More Related