Chapter 4 Outline |
V. THE ROLE OF GOVERNMENT |
A. Antitrust Laws |
| 1. Antitrust laws prohibit price fixing and other types of explicit cartel or monopoly behavior. |
| 2. Antitrust laws prohibit mergers in certain instances. |
| a. A merger is a combination of two or more firms into one firm. |
| 3. Through the use of antitrust laws, government discourages market power. |
| 4. Antitrust laws should not necessarily be used to restructure all firms with market power. |
| a. If the industry is a natural monopoly, monopoly profit may provide
incentives for innovations that, over time, would reduce or eliminate
market power. |
| b. The existence of monopoly profits provides an incentive for economic rent
seeking. |
| c. The existence of profits encourages new firms to come into the industry
causing prices to be lowered. |