Regulation and Deregualtion

Market Power• Monopolies and oligopolies control prices, and output. • Will often drive other competitors out of the market through

predatory pricing. Set prices below costs to have small companies fold.

• Practice also hurts the big company however

Government watchdog• Federal Trade Commission and Department of Justice• Antitrust laws• Trust- business combination similar to cartel• Sherman Antitrust Act- outlaws mergers and monopolies that

limit trade between states• Gave Congress the power to regulate business and industry

Regulating Business• Microsoft 1997• DOJ accused Microsoft of monopolistic behavior• Insisted computer manufacturers that sodl its operating

systems must also include its browser.• Microsoft gave it browser away for free.• Predatory pricing- unfair advantage over Netscape

Microsoft• Went to court• Claimed browser was part of operating system and could not

be sold separately• Also claimed plenty of competition-lost• 2001President Bush settled case• Microsoft could link browser to operating system, but not

force manufacturers to provide only Microsoft software

Breaking up Monopolies• American Tobacco Company• Standard Oil• AT&T- 7 baby bells (Bell South, Pac Bell)• Government has power to block mergers that might create

monopolies• XM Radio/Sirius• Sometimes- allowing mergers can also help consumers- $$$

and efficiency

Deregulation• Government can also loosen it watch• Airlines, trucking, banking, railroad, natural gas, and television• Actually allowed for more competition between firms• Good and bad• Regulation protect but can be burdens on

companies/barriers / passed to consumers

Regulation vs Deregulation• Mixed results• 1990’s electricity and natural gas• \Some markets consumer prices fell- other markets they went

up.• Airlines• 1978 President Carter deregulated• Bigger companies bullied out smaller• After 9/11 airline industry is still ?????