Exam 13: Limiting Market Power: Regulation and Antitrust

Before the breakup of AT&T several years ago, profits on long-distance calls offset losses on basic residential service.This practice is known as

Deregulation of the airline and trucking industry has (i) resulted in considerable entry of new firms, and (ii) has forced unions in these industries to make large concessions on wages and working conditions.

What are the reasons that are usually given to justify regulation?

"Economies of scope" occur when

Market power allows firms to raise prices significantly above the competitive level.

Concentration increases in an industry

One of the clear effects of deregulation was

Serious concern for deregulation began to appear in Congress in the 1970s.

Trusts were groups of firms that acted together to raise prices above competitive levels.

One economically valid approach to regulation is simply to break all large firms into many smaller ones.

What would the Herfindahl-Hirschman Index equal for an industry consisting of 20 firms with each holding a 5% market share?

What would the Herfindahl-Hirschman Index equal for an industry consisting of six firms with market shares of 5%, 10%, 15%, 20%, 25%, and 25%?

A merger occurs when two previously independent firms are combined under a single owner.

The Clayton Act prohibits "all contracts, combinations and conspiracies in restraint of trade."

All large firms have monopoly power.