Econ 200 Foldvary
Chapter 9, Antitrust
Antitrust is essentially an economic issue.
Efficiency, rather than equitable distribution.
Perfect competition. Atomistic competition.
Price takers. How price change?
Long run zero profit.
Effect of a subsidy.
Surplus: consumer, producer.
Who gets the producer surplus?
Zero profit. P=AC.
Entry monopoly: can’t expand supply.
Pricing power (market power) depends on elasticity.
Also with oligopoly.
Max profit, MC=MR.
Monopoly: higher price, lower quantity, less consumer surplus.
Producer surplus increased.
DWL or welfare loss
Larger firm may have lower LAC.
Alcoa case 1945
United States v. Aluminum Company of America
Example of market share analysis
Alcoa produced 90% of aluminum, 10% imports.
Judge Learned Hand ruled that Alcoa was a monopoly.
Monopolization under the Sherman Antitrust Act.
But higher prices could have increased imports.
Hand remanded the matter to the trial court for a determination of the remedy.
Alcoa said that there were now two new entrants into the aluminum market
– Reynolds and Kaiser –
The district court judge ruled against divestiture in 1950.
Alan Greenspan criticized United States v. Alcoa as in 1966.
He argued that antitrust law should only condemn coercive monopolies:
That anti-trust action is worse than the monopoly.
United States vs. Microsoft 2001
Market power for operating systems and bundled browsers.
Microsoft: companies can enter the industry.
Court said that path dependence and network externalities made Microsoft a monopoly.
Also engaging in abusive practices contrary to the Sherman Antitrust Act 1890.
Microsoft stated that the merging of Windows and Internet Explorer was innovation.
In 2000, the court ordered a breakup of Microsoft into two separate units, one to produce the operating system, and one to produce other software components.
The D.C. Circuit Court of Appeals overturned Judge Jackson's rulings against Microsoft.
The DOJ announced in 2001 that it was no longer seeking to break up Microsoft
and would instead seek a lesser antitrust penalty.
The consent decree barred Microsoft from entering into Windows agreements that excluded competitors from new computers, and forced the company to make Windows interoperable with non-Microsoft software.