ECON 200 Lecture Notes - Lecture 40: Sherman Antitrust Act, Clayton Antitrust Act, Natural Monopoly
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Econ 200 lecture 40 public policy toward monopolies. Increase competition with these laws: prevent mergers, split up companies. Give government the authority to control markets and promote competition. Allows government to ban anticompetitive markets, prevent mergers, and break up large dominating companies. Examples: sherman antitrust act, clayton act. However, antitrust laws can impose costs on society: mergers can provide synergies, synergies = positive effects, these effects take the form of lowered cost through joint production. For all natural monopolies, mc < atc at all q. Marginal cost pricing would result in losses (p < atc) So, regulators could subsidize the monopolist or set p = atc for zero profit. If p = atc, there is still a dwl and no incentive to reduce costs. If subsidizing, dwl from taxing to fund the subsidy. To recap: p = atc pricing results in zero profit, p = mc pricing results in a loss that the government would need to subsidize.
