Introduction
I. CL
a. Prohibition on Monopoly
i. Difference b/w government granted and private monopolies
b. Middleman offenses – taking advantage of price differentials
i. Forestalling
ii. Regrating
iii. Engrossing
c. Restraint of trade
i. Prohibited enforcement of cartel agreements
II. Antitrust
a. Trusts – ways to deal w problem
i. Regulate or socialize
ii. Laissez faire – leave alone or reduce taxes
iii. Actual antitrust laws: prohibit certain types of private restriction; only if it can be proved – compromise b/w extremes
b. Competition
i. Agreements that eliminate rivalry and reduce competition
1. May also have effect of reducing costs and increasing innovation
ii. Agreements that go further and eliminate competition
1. Measure relationship b/w price and cost
2. Purely competitive market: price = marginal cost
iii. Two ways to reduce competition
1. Cartel
2. Exclusionary practice
III. Sherman Act (1890)
a. § 1: (1) K, combo, or conspiracy (agreements), (2) in restraint of (3) trade or commerce = illegal
b. § 2: Bans monopolization or conspiracy to monopolization
i. Implicitly requires monopoly or something close to it
ii. Predatory pricing – local price cutting, time price cutting, cross-product price cutting
iii. Exclusionary dealing K
IV. Clayton Act (1914)
a. § 2: No person engaged in commerce can directly or indirectly price discriminate; where effect may substantially lesson competition or tend to create a monopoly
i. Predatory pricing
ii. Secondary line price discrimination – buyer demanding favorable prices
b. § 3: Can’t buy w condition that seller won’t sell to your competitor where it would lesson competition
i. Only apply to sale of goods, not services
ii. Exclusive dealing K
iii. Similar to Sherman act § 1
iv. Also interpreted to apply to tying
c. § 4: private – treble damages + attorneys fees for persons injured
d. § 7: can’t acquire stock of competitor to create monopoly or reduce competition
i. Horizontal merger:
1. most likely to reduce competition if direct competitors in product and market; where no other competitors
2. If other competitors may be dangerous if near monopoly
3. Easier for smaller # of firms to coordinate than if larger # > like cartel
ii. Vertical merger
V. FTC Act (1914)
a. § 1: created administrative agency to inquire into antitrust issues
b. § 5: unfair methods of competition are unlawful > antitrust; also unfair or deceptive practices > consumer department (fraud)
i. Practical matter > courts tend to keep FTC w/in standards of other acts
ii. Must show actually reduction in competition
iii. Procedure for administrative adjudication
VI. DOJ antitrust division
a. Criminal
b. Civil
Economics
I. Demand
a. As price of good increases, consumers want less of it and vice versa
b. Substitution:
i. Everything else constant > price of one good goes up, price of other goods appear relatively lower
c. D = marginal value of good to consumer & average revenue (b/c can only sell next unit at same price as last) to producer = price of good
i. Endogenous factors
1. Changes move you along D curve
2. Price (vertical)
3. Quantity (horizontal)
ii. Exogenous factors
1. Held constant for given D > determine shape & location/position of D
2. Income > increase shifts curve to right (unless inferior goods)
3. Price of substitutes > increase shifts curve to left
d. Total value of goods = sum of marginal values of each unit produced (area under curve)
e. Total revenue =
i. Price of goods multiplied by number of goods sold
ii. Rectangle drawn from curve at output q
iii. Area under MR
f. Consumer surplus
i. Difference b/w total revenue and total value
ii. Consumer is capturing a larger value than they assign to goods
CS
TR
D
$
Q
q
II. Marginal Revenue
a. Increase or decrease in TR attributable to last unit sold
b. Addition to TR by selling additional unit; decreases twice as fast as D
i. Have to decrease price to sell next unit, so get revenue from next unit, but subtract amt you had to decrease the price on the prior unit
ii. When it becomes negative, starts reducing TR
TR
q1 q0 q2
Triangles lr lm
Break
Even pt
AC
5. For horizontal D, MR = AR = D, b/c sale of additional unit doesn’t require reduction in price, will always recover in revenue what the market price is.
6. Supply curve is MC at every point above minimum average cost
a. Break even point is where MC = AC
b. That is where AC is at it’s minimum
7. Firm makes money if minimum average price is below D curve
8. No profit, but making opportunity cost if D = min. AC (point of entry)
iv. Competitive market
1. Supply curve = horizontal sum of firms individual supply curves
a. Output determined by entry and exit of firms
b. Price determined by entry point
c. If all firms have different entry point, supply curve will be upward sloping
2. D downward sloping b/c horizontal sum of all consumer curves
3. Equilibrium is where they intersect
a. Area under D curve up to point is amt at which consumers value that product
b. Area below MC is cost of production
c. Consumer surplus is area below D and above price
d. Producer surplus is area above MC (supply) and below price (more efficient firms capture)
e. If you took less efficient firm out of market, then resulting firms would have to absord excess demand at higher price
i. Firms equally efficient at the margin
VI. Noncompetitive market structures
a. Monopoly
i. D downward sloping (b/c it is the market)
ii. MR for increasing output less than AR
