This document discusses economic regulation and antitrust laws. It provides examples of industries that are subject to economic regulation at both the state and federal level, such as electric, gas, telephone and banking companies. It also summarizes the purpose of antitrust laws in prohibiting restrictive trade practices and protecting competition. The document then examines different perspectives on the goals of antitrust laws and how the guidelines for evaluating mergers have changed over time in response to increasing globalization and competition.
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This document discusses economic regulation and antitrust laws. It provides examples of industries that are subject to economic regulation at both the state and federal level, such as electric, gas, telephone and banking companies. It also summarizes the purpose of antitrust laws in prohibiting restrictive trade practices and protecting competition. The document then examines different perspectives on the goals of antitrust laws and how the guidelines for evaluating mergers have changed over time in response to increasing globalization and competition.
This document discusses economic regulation and antitrust laws. It provides examples of industries that are subject to economic regulation at both the state and federal level, such as electric, gas, telephone and banking companies. It also summarizes the purpose of antitrust laws in prohibiting restrictive trade practices and protecting competition. The document then examines different perspectives on the goals of antitrust laws and how the guidelines for evaluating mergers have changed over time in response to increasing globalization and competition.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPTX, PDF, TXT or read online from Scribd
This document discusses economic regulation and antitrust laws. It provides examples of industries that are subject to economic regulation at both the state and federal level, such as electric, gas, telephone and banking companies. It also summarizes the purpose of antitrust laws in prohibiting restrictive trade practices and protecting competition. The document then examines different perspectives on the goals of antitrust laws and how the guidelines for evaluating mergers have changed over time in response to increasing globalization and competition.
Copyright:
Attribution Non-Commercial (BY-NC)
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PA-233-01
Feb. 03, 2010
Group Members: Dax Bahr Rizelle Pecson Nicole Garcia Ronalyne Agpaoa •Economic Regulation is a form of government intervention designed to influence the behavior of firms and individuals in the private sector. Defined as the imposition of rules by a government backed by the use of penalties attended to modify economic behavior. •Antitrust Laws, Prohibits the practice of restricting free trade and/or Competition between businesses. It also prohibits abusive actions by firms such as price gouging, refusal to deal, and predatory pricing. And is supervises mergers of companies, to prevent actions that would harm competition. •State Level (most common) include, electric, gas, telephone, and local cable television companies. •Federal Level Control includes interstate air transportation through Federal Aviation Administration, interstate telephone rates/ broadcasting licenses through Federal Communication Commissions, certain types of banks through the Federal Reserve System, and securities by Securities and Exchange Commissions. •Electric Companies Began in the late 1870s as a street lighting and electric railway business. •Where given service territories and exclusive rights to sell electricity within the territories. •Vertically integrated, generation, transmission, and distribution. •Federal government sells electric power as a by-product of irrigation and flood-control projects. Aka dams. •Federal government provides loans and grants for new state and district power agencies and municipal electric systems. •Mostly rate of return on investment regulated. •One of the states regulatory commissions most important functions is to determine the proper level of return on investments, profit. •To protect consumers against exorbitant charges. •To set rates for services at levels that will afford the companies an opportunity to earn a fair and reasonable rate of return. •Rate of return is the amount of money gained or lost on an investment relative to the amount invested. •Allowing varying rates within a price cap. •Earnings Deadband, allowing companies to keep profits it earned within a range “deadband”. In return for a moratorium on initiating new rate adjustment cases. •Increased rates for additional earnings sharing. •Rate freezing and profit sharing. •Setting rates for specific categories; difficult to both companies and regulatory agencies • Suggestion for change- peak load rate •Electricity pricing •Invert the rates •Electric utility industry restructured by legislative, regulatory, organizational changes •Competition in same markets •Build and operate power plants •Late 1990’s, California was facing retail electricity prices •“Perfect storm”- mid 2000 •Deregulation or bad luck Competition is fundamental to a market system and to the private enterprise activity. Without vigorous competition, the private enterprise system would not attract and maintain enough support for its continuance. In order to promote that objective, Congress enacted three key antitrust statutes to outlaw attempts at monopoly and agreements on the part of private firms. The term antitrust derives from a form of business organization (the trust) that was popular in the latter part of the nineteenth century. The trust was a device for pyramiding control over several operating companies. Key examples: the sugar trust; the tobacco trust and the best known oil trust (standard oil) The grandfather of antitrust law in the United States is the Sherman Act, passed in 1890. The Sherman Act is enforced by the Department of Justice, which initiates lawsuits against alleged violators. The real contribution of the Sherman Act has turned to restraint trade and monopolization into offenses against the federal government and to require enforcement by federal officials. Clayton Act is the second major antitrust law, passed in 1914. The Clayton Act is enforced by the Department of Justice through direct court litigation or by the Federal Trade Commission (FTC) through investigative and hearing procedures. It is illegal to engage in several important types of business policies or conduct that may be conducive to monopolization or restraint of competition. oThese prohibited actions include price discrimination, exclusive and typing contracts, and interlocking boards of directors The efficiency approach claims that the only legitimate goal of antitrust is consumer welfare, which is equivalent to economic efficiency. The proponents of competitive approach believe the intent of the Sherman Act is to establish the right for buyers to pay no more than the competitive price. Improved economic efficiency resulting from a merger will result in either lower prices and increased profits or if market power is enhanced in the process, higher prices and small cost savings. The objective of antitrust is to maintain markets sufficiently to regulate themselves. With varying degrees of enthusiasm, they support laws controlling mergers and attempts to monopolize, increasingly questioning their need and effectiveness. They defend internal growth results are in a more concentrated market structure. Some studies tend to show that profits related closely to market share than to degree of concentration of the market. Large companies are increasing because they are effective at meeting customers’ desires, not due to accomplishments but by ripping off consumers. Many structuralists believe that if companies grow too large, they no longer subject the discipline of competition. The structuralists contend that large companies not only produce adverse economic consequences but exercise excessive social and political power. Some of the structuralist economists find that the large firms in concentrated industries earn higher rates of return on investment. From the structuralist’s point of view, antitrust enforcement is not controlling the adverse effects of concentrated industries. • In 1982, the Antitrust Division of the Justice Department introduced the Herfindahl Index. •a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. • A merger would be allowed if an industry with • 4 equally sized competitors controlled 60% of the market and the other 40 controlled 1% each. • 1984 the Justice Dept revised its merger guidelines • efficiency claims, imports, barriers to new entrants and the problem of declining industries. • 1992 DOJ and FTC issued a modest, revised Horizontal Merger Guidelines of the ‘84 version. • biggest change: reduce the chance that an agency would challenge a proposed merger that is unlikely to injure competitions. • In 1996 FTC objected a lot of proposed mergers, like Staples and Office Depot • the combinations would lead to higher prices for consumers. • Late 90’s mergers hit it big because the companies were working in the same sector. The largest merger was AOL and Time Warner in a $156 billion deal. · competition is encouraged by the knowledge of that potential new entrants can match the positions of well-established companies. Entry is free and exit is costless. No business is perfectly contestable. · Strong consensus: horizontal price fixing is anti-competitive and horizontal mergers in concentrated industries, protected by fringe competitors, should be viewed with suspicion. · Ex: Airline Market. Carriers could shift their equipment from one airport to another. But, landing slots are limited so they would have to buy a slot from an existing holder. Meaning, a firm can enter a air-travel market only by obtaining a company that’s already in the market. • Competitive reality: larger U.S. firms are competing against overseas giants as well as against smaller domestic companies. • 1992-1997, pressure of increasing competition grew, the efficiency of a firm’s operations assumes new weight as a reason for mergers and other actions that are likely to result in demonstrated savings in cost. • Foreign competitions are no longer a part of the antitrust equation because the imports are counted with the total of foreign firms’ share of the US. • Antitrust agencies are undercut by three factors: the internalization of production, the increased cross-border flows of info, money, and technology, and the resultant rise of the transnational enterprise. • In 1994, the antitrust division has stepped up its trials on international antitrust cases w/ foreign defendants and overseas violations of the laws. Foreign govts think that it is unjustified extraterritorial enforcement of the domestic laws of the US. • Conflicts rises because individual nations have different types of orders & may interpret them in various ways. • US antitrust authorities said that the merger would have been precompetitive and yet useful to consumers. The EU and the US differed fundamentally: one focused on the effects on consumers, the other on the effects on other companies in the industry.