Government

Regulation and
Competition
Is the government responsible for protecting
consumers from big business? Why or why
not?
Market Power
Monopolies and oligopolies have market power. This means they are able to
control prices and total market output.
Markets dominated by one company tend to have higher prices and lower
output.
If a company already has some market power, what can a large company do
to increase their market power?
Predatory
Pricing
Companies with market power can
engage in predatory pricing to increase
their market power.

This means they will lower the price until

smaller, less profitable companies go out
of business.

Some economists are skeptical of this

though because the predator also loses
money during this process.
How can the government protect consumers
and small businesses from predatory
pricing?
Antitrust Laws
A trust is a large company or
group of companies that uses its
market power to control a market
unfairly.
Antitrust laws were created to
allow the government to monitor
large companies, prevent them
from merging, and possibly break
them up into small companies if
necessary.
Regulating Business Practices
In 1997, the US government began
suing Microsoft, the largest provider of
computer operating systems, for
including its internet browser as a
free, exclusive feature on its platform.
They argued that this was predatory
pricing meant to put other competitors
like Netscape out of business.
Regulating
Business
Practices
In 1999 and 2001, the court and
Microsoft agreed that the
company could include its browser
in its operating system, but
couldn’t force computer
manufacturers to only offer
Microsoft browsers.
Regulating
Business
Practices
Another example includes the
break-up of AT&T in 1982-4.
The government allowed local
calls to remain a natural
monopoly, but treated long-
distance calling differently.
This action has helped
consumers.
History of Antitrust
Is deregulation always a bad
thing?
Deregulation
Some economists argue that government involvement creates inefficiencies
and that market forces will break monopolies on their own. For example, cell
phones eventually emerged to challenge landline phone monopolies.
Deregulation of Airlines
Government
regulation/deregulation