Free Economics Class Notes

Chapter 32 Antitrust and Other Government Regulations

I. Understanding Monopoly Power
II. Antitrust Laws
III. The Changing Role of Government Regulation
IV. Antitrust Prosecutions 2 videos
V. Internet Readings
See U.S. Political Economy for one-page topic analysis
See Reforming Regulation

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1-page printable review I. Understanding monopoly power A. Society limits abuses of market controlling monopoly power which is the ability to control market activity. B. The economic effects of monopoly power are higher prices, a smaller quantity sold, and economic rent to owners. C. Measuring the amount of industry concentration 1. Standard industrial classifications (SIC) divide industries into homogeneous concentrations such as apparel (23), male (3), and nightwear (2), resulting in SIC 2332. 1997 NAICS and 1987 SIC Correspondence Tables 2. Concentration ratios measure the % of total industrial activity in LIKE sales and employment for oligopoly industries a. Four company industries are the most common. b. Evidence is mixed as to whether concentration ratios are changing . c. Increased inter-industry mergers and international competition make analysis difficult. d. Concentration rations are available from the US Census Bureau e. Rise of Monopoly Power in the United States Washington Center for Equitable Growth video D. Types of business integration (mergers) to form business trusts which were allowed to exist by a Supreme Court that put liberty of contract ahead of personal liberty during the Gilded Age. 1. Horizontal integration results from a merger of competing companies. Standard Oil was form by controlling refining and transportation of oil. 2. Vertical integration results when companies that have supply dealings merge. U.S. Steel was formed with the merger of coal and iron minors, transportation to smelters and sale of steel. E. A brief history of the merger movement 1. The late 19th century brought trusts (controlling corporations by controlling their boards of directors) and the need for antitrust laws to regulate the many horizontal mergers of America's Gilded Age. 2. The 1920's brought vertical mergers as antitrust laws made horizontal mergers difficult 3. The 1960's and early 1970's was the time of conglomerates, which combined unrelated businesses. 4. The 1980's brought corporate raiders who broke up conglomerates, many using junk (high risk) bonds to finance leverage (high debt) buyouts. 5. 1990's brought a return to mergers, many of them between international companies. F. Readings and Videos 1. 140 years of antitrust competition ideology of Democrat and Republican Platforms 2. Price fixing from Wikipedia 3. Financial Crisis is our free Internet course a. The Great Recession 3 p b. Financial Crisis Video 4. Antitrust and How Kleptocracy Corrupts What Markets Are Supposed to do Well

II. Antitrust laws A. Sherman Antitrust Act of 1890 made monopolies and attempts to monopolize illegal. Combinations, contracts, and conspiracies in restraint of trade were made illegal. B. Clayton Act of 1914 prohibited tying contracts (tying the purchase of product A to the purchase of product B), price discrimination, and stock ownership of competitors which would substantially lessen competition. C. Federal Trade Commission Act of 1914 created the FTC to control deceptive unwanted business practices. D. Robinson-Patman Act of 1936 made predatory pricing illegal E. The Wheeler-Lea Act of 1938 amended the FTC Act to make unfair and deceptive trade illegal. F. Celler-Kefauver Ant merger Act of 1950 made the purchase of assets of another company illegal if the purchase would substantially lessen competition.	Sen. John Sherman (R�OH), the principal author of the Sherman Antitrust Act.
III. The changing role of government regulation A. Before there was regulation there was ANDREW JACKSON who took on the eastern bankers because he felt it had excessive power. B. Important regulating agencies 1. Interstate Commerce Commission (ICC)-rails and trucking 2. Federal Aviation Administration (FAA)-air travel 3. Federal Communications Commission (FCC)-airways 4. Securities and Exchange Commission (SEC)-issuers of financial instruments such as stocks and bonds C. A move toward deregulation began by Margaret Thatcher in the 1970's spread to the United States and Western Europe in the 1980's. 1. Many felt federal government regulation represents a costly and inefficient misallocation of economic resources. 2. Railways, trucking, airlines, and financial institutions were deregulated in the late 1970's and 1980's. a. Some deregulation activities were very costly (financial institutions bailout of the late 1980's) b. Overall, the jury is still out on the success of deregulation. D. Regulators are redirecting efforts away from maintaining competition toward social regulation. 1. Government regulation of industry has changed direction. a. International competition requires companies work together to develop technology and share in its high costs. b. Many feel government should foster cooperation among competitors with an industrial policy. c. Others feel the market system should be left to direct resource (factor) allocation. 2. Regulation protecting individuals has become more prominent. a. Environmental Protection Agency (EPA) protects individuals from pollution (air, water, noise). b. Consumer Protection and Safety Commission (CPSC) protects consumers from unsafe products. c. Food and Drug Administration (FDA) dangerous food, drugs, cosmetics, etc. See The Jungle a famous expos� of the meatpacking industry. d. Federal Trade Commission (FTC) protects the consumer from unfair trade practices such as deceptive advertising. e. Occupational Safety and Health Administration (OSHA) protects people while at work. f. Equal Employment Opportunity Commission (EEOC) attempts to eliminate workplace prejudice. g. National Labor Relations Board (NLRB) regulates activities between business and unions. 3. Intellectual Property Law video 4. Conversation with Mark Blyth: Economics and Social Justice 5. The Golden Age of White Collar Crime E. The Trump Regulatory Record	Obama Changed the Direction

Visible Vs. Invisible

Result

Did Regulation Pay?

An Explosion in the Regulation of the American People

Visual Effect Not Correct
Benefit About 8.33 Bigger Than Cost

E. Bail-outs occur when outside investors, such as a government, rescue a borrower by injecting money to help make debt payments. For example, U.S. taxpayers provided capital to many major U.S. banks during the economic downturn in order to help them meet their debt payments and remain in business, as opposed to being liquidated to creditors. This helped save the companies from bankruptcy, with taxpayers assuming the risks associated with their inability to repay the loans.

According to The Economist, the magazine that coined the term "bail-in", a bail-in occurs when the borrower's creditors are forced to bear some of the burden by having a portion of their debt written off. For example, bondholders in Cyprus banks and depositors with more than 100,000 Euros in their accounts were forced to write-off a portion of their holdings. This approach eliminates some of the risk for taxpayers by forcing other creditors to share in the pain and suffering.

Readings
1. Teddy Roosevelt took on the Trusts from Presidential Courage
2. Red Tape Rising The regulatory state is expanding sharply.
But Barack Obama hints that there may be moderation ahead.
from Economist Magazine
3. Positive results from government regulation
4. HD Thoreau concerning Government Regulations
5. Why Current Methods to Combat Climate Change Don�t Work
6. Did market failures cause the 200-08 financial crisis? 12/3/14
7. Challenges in Measuring Regulatory Capture/ 6/22/16
8. How President Trump and Congressional Republicans are Undercutting Wages
9. Regulation and Regulatory Burden from the St Louis Fed

Frances Perkins the longest serving U.S. Secretary of Labor (1933 to 1945) was first woman appointed to the U.S. Cabinet. She executed many aspects of the New Deal, including the Civilian Conservation Corps, the Public Works Administration and its successor the Federal Works Agency, and the labor portion of the National Industrial Recovery Act. With the Social Security Act minimum wage" overtime laws for a standard forty-hour work week. She formed governmental policy for working with labor unions and helped to alleviate strikes by way of the United States Conciliation Service. Perkins resisted the drafting of American women to serve the military in World War II so that they could enter the civilian workforce in greatly expanded numbers. Her attempt to include National Health Care in the Social Security bill was stopped by the AMA.

IV. Antitrust prosecutions
      A. Enforced by the antitrust division of the Justice Department
      B. THEODORE ROOSEVELT took on the corporate monopoly
          Trusts that control railroad rates and routes and thus destroyed
           small towns and farms
     C. Rule of Reason
          1. Applied by the Supreme Court in a 1911 antitrust case
              against Standard Oil of New Jersey and the American
              Tobacco Company
          2. Court stated that behavior must be unreasonable in a competitive
               sense and anti-competitive effects must be demonstrated.
          3. Both companies were found guilty.
          4. The Court ruled that bigness alone was not against the law in
              1921 when it ruled that U.S. Steel was not a monopoly even
               though it controlled 50% of the market.
          5. Bigness alone was prosecuted by the Supreme Court in 1945
              as it broke up Alcoa because it controlled 90% of the aluminum
              market.
      D. Tight enforcement, which began in 1914, ended in the early 1980's.
      E. For more information read
          1. Rule of reason - Wiki
          2. Executive Summary Of The Anti Trust Laws
      F. Videos
          1. No Recent Prosecution of Financial Fraud
             2. Reinstating Glass-Steagall

V. Internet Readings
      A. The Great Recession was aided by poor government regulation. 12/27/14
      B. Who Makes the Rules 4/13 Economics Intersection
      C. Democratic Capitalism vs. Capitalistic Democracy
      D. Documentary-of-the-week-FINRA- Madoff history video
      E. Rich world needs to cut red-tape and encourage business 2/22/14 See chart
      F. Why Regulation Goes Astray 5/21/14
    G. Economic Normality1945-2015

Ida Tarbell and other investigative journalists were called Muckrakers. She exposed Standard Oil Trust. Working for McClure Magazine and other monthly magazines they help educated the public from 1890 to 1929 in what is known as the Progressive Era.

Books also help the education process.

The Jungle exposure of health violations and unsanitary practices in the early 20th century American meatpacking industry.

The Octopus exposed a large interlocking network of criminal conspiracy that reaches into every part of the U.S. government, other national governments, and most of sector's of societies.

The Bitter Cry of Children exposed the terrible child working conditions. Some tried night school but after working ten hours learning to read was difficult.

Business Progressivism of the 1920's typified by Henry Ford and Herbert Hoover put an emphasis on efficiency. As of 2018, at least 18 states have enacted joint-employer shield laws specifically designed to protect one very wealthy special interest group: corporate franchisers.1 Corporate franchisers are the big companies�like McDonalds, or Marriott, or Carl�s Junior�t These state joint-employer laws are intended to shield the corporate owners of the franchise from bearing joint responsibility with their franchisees for complying with minimum wage, overtime, health and safety, and other laws applicable to the employees who work at the franchisee�s stores. In simple terms, the joint-employer shield laws preclude applying the joint-employer legal doctrine to hold franchisers jointly responsible for violations of employee rights.

What states have joint-employer shield laws?

The 18 states as of January 2018 are Alabama, Arizona, Arkansas, Georgia, Indiana, Kentucky, Louisiana, Michigan, New Hampshire, North Carolina, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, Utah, Wisconsin, and Wyoming.7

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