Chapter 4 Outline
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.
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