Antitrust Policy and Government Regulation of Business Resources
This topic presents an evaluation of the effect on competition of scale economies, and acquisitions and mergers. It also covers methods of measuring market concentration as well as a discussion of possible policy measures designed to limit the damage from concentration.
- Describe the possible costs and benefits of mergers and acquisitions (2,11)
- Describe the government’s role in evaluating proposed mergers (2,6)
- Calculate market concentration ratios (4FCR, HHI) (2,11)
- Identify types of anticompetitive behavior (10)
- Describe regulatory strategies for natural monopolies (2,6,11)
- Define the potential costs and benefits of regulation and deregulation (1,2,6,11)
NOTE: This module meets Ohio TAGs 1, 2, 6, 10, 11 & 12 for an Intro to Microeconomics course
Recommended Textbook Resources
Full Citation: Greenlaw, S. and Shapiro et al. Principles of Microeconomics 2e. OpenStax CNX. June 4, 2018. OpenStax, Principles of Microeconomics 2e.
This chapter covers all learning objectives listed above.
Supplemental Content/Alternative Resources
Alternative Video Resource
The following video, "Natural Monopoly and the need for Government Regulation" by Jason Welker, takes a more detailed look at “natural monopolies” and examines the theory behind regulatory strategies. The video runs 15 minutes.
Active Learning Exercise
The following websites contain information on business regulatory policy in the U.S., the Eurozone and China, respectively. The readings are lengthy so instructors should be selective in their assigned reading.
- The Antitrust Laws - US Federal Trade Commission
- Antitrust Overview - European Commission
- Competition Policy and Enforcement in China - The US - China Business Council
After reading the assigned sections, students can discuss how the treatment of monopolies and anti-competitive behavior differs across the three regions.
Questions and Problems
Antitrust Policy and Government Regulation of Business
Questions and Problems
Instructors can add a Google Doc of the Antitrust Policy and Government Regulation of Business Questions and Problems to their Google Drive or download a Word File of the Antitrust Policy and Government Regulation of Business Questions and Problems.
Use the graph to answer questions 1-5.
- If this firm is a private profit-maximizer, what output will it produce? What price will it charge?
- If the firm were regulated and instructed to set its price equal to marginal cost, what would its output and price be?
- What problem would arise in that case?
- If the firm were regulated and instructed to follow a zero-profit pricing mode, what would its output and price be?
- What is the change in consumer surplus moving to a zero-profit regulatory model from the private profit-maximizing model?
- Rank the following items according to the level of market concentration is most likely in each market, from least concentrated (most competitive) to most concentrated (least competitive).
- An Aquaman costume
- Paper bags with Halloween decorations for trick or treating
- Projection systems to display witches and ghosts on the garage door
- Go to https://www.statista.com/statistics/271496/global-market-share-held-by-smartphone-vendors-since-4th-quarter-2009/ and compute the HHI for the global smartphone market. Assume that the “Other’ category consists of 12 firms, each with 2% of the market. How would the Department of Justice consider this industry? If Xiaomi, vivo, and Oppo merged, what would the new HHI value be?
- Go to https://www.counterpointresearch.com/us-market-smartphone-share/ and calculate the HHI for the U.S. market. This time, assume “Other” consists of two firms, each with 7% of the market.
- Q=10; P=$8
- Q=35; P=$1
- The firm would make negative profits and eventually shut down.
- Q=30; P=$2
- Paper bags with Halloween decorations for trick or treating (low barriers to entry)
- Candycorn (low barriers to entry, but some equipment needs and technical knowledge needed)
- Projection systems to display witches and ghosts on the garage door (higher barriers to entry due to capital costs)
- An Aquaman costume (copyrighted character)
- 1108. According to DoJ guidelines, this industry is fairly competitive. If Xiaomi, Vivo, and Oppo merged, what would the new HHI value be? 1460