RELATIONSHIP BETWEEN REGULATION AND MARKET STRUCTURES 6
Relationshipbetween Regulation and Market Structures
Relationshipbetween Regulation and Market Structures
ShermanAct, Clayton Act, and Federal Trade Commission Act are the coreantitrust laws in United States. Antitrust legislations forbidillegal trade practices, and mergers and courts have the jurisdictionof determining unlawful business practices on the basis of each casefacts. Main objectives of antitrust statutes are ensuring there isfaircompetition among businesses, there are incentives for efficientoperations of businesses, which prices are low, and services andgoods offered are of high quality. ShermanStatute forbids any combination or conspiracy to monopolize,attempted monopolization or monopolization and every conspiracy,combination, or contract in restraint of commerce. Enforcementactions of Sherman Act are civil, but the statute can be enforced asa criminal law depending on the case (Jacobson & American BarAssociation, 2007).
FederalTrade Commission Act prohibits deceptive or unfair practices or actsand unfair ways of competition. Violation of Sherman Statute resultsto violations of FTC Statute. Clayton Statute addresses explicitpractices, which are not explicitly prohibited under the ShermanStatute, such as amalgamations and interlocking directorates. Thestatute bans acquisitions and amalgamations where the result can besignificantly to tend to form a monopoly or reduce competition. In1936, the Robinson-Patman Statute amended the Clayton Statute banningdefinite discriminatory services, allowances and prices intransactions among merchants. In 1976, the Hart-Scott-RodinoImprovements Statute amended the Clayton Statute requiringcorporations planning huge acquisitions or amalgamations to informgovernment of their arrangements in advance (Jacobson & AmericanBar Association, 2007).
Collusionis a common feature among firms operating in an oligopolisticmarketplace structure. The dominant enterprise sets prices that areaccepted and adopted by other industrial players. Firms’ adoptionof price leadership facilitates tacit collusion. Consequently, thedominant firm tends to set high prices whereby even firms that areleast cost efficient may realize returns. This collusion conductminimizes rivalry response and results to the formation of pricesetting cartels. These cartels create barriers prohibiting new firmsin the market. The antitrust statutes prevent collusion among the fewfirms operating in an oligopolistic market. The statutes protectconsumers against prohibitive prices resulting from unfair tradepractices (Conant, 2008).
Monopolyis a marketplace structure dominated by one producer or seller.However, there may be very few firms operating in this marketstructure, selling non-homogenous merchandise or services. Thesefirms engage in monopolistic competition, which prohibits them fromfully exploiting the in-house economies of scale, thus inefficiency.Monopolistic competition results to heavy expenditure on advertising.The antitrust statutes prevent unfair trade practices among thesefirms through advertising and promote innovation (Conant, 2008).
TheFERC (Federal Energy Regulatory Commission) regulates of theinter-country transmission and sale of oil, natural gas andelectricity. The commission also issues licenses for hydropowerprojects and evaluates and approves proposals to construct or abandoninter-country pipelines and terminals for natural gas. The commissionreviews certain corporate dealings, acquisitions and amalgamations ofelectricity corporations. The commission ensures there is areliability of high voltage inter-country transmission ofelectricity. The FCC (Federal Communications Commission) regulatesglobal and inter-country communications by cable, satellite,television, wire and radio in all fifty states, the United States andDistrict of Columbia territories. The commission aims at promotinginvestment, competition and innovation in broadband facilities andservices (Conant, 2008).
TheSEC (Securities and Exchange Commission) function is to facilitatecapital creation, shield investors, and maintain orderly, efficientand fair markets. Regulations and laws governing securities industryin U.S. require that all investors should have access to facts aboutinvestments before and after buying. SEC requires public corporationsto reveal meaningful monetary and other facts to the public. Theinformation serves as a universal collection of knowledge for allinvestors to utilize in making investment decisions (Conant, 2008).
Socialregulations are rules governing how individuals or businesses conducttheir activities with the objective of correcting market failures.The purpose of social regulation is to protect third parties againstnegative externalities emanating from firms’ activities. CPSC(Consumer Product Safety Commission) has the responsibility ofshielding the public from unreasonable perils of death or injuryrelated to the utilization of numerous types of consumer merchandisesunder its jurisdiction. FDA (Food and Drug Administration) has theresponsibility of shielding the health of the public by guaranteeingthe security, efficacy, and security of human being and veterinarydrugs, cosmetics, medical devices, food supplies, biologicalproducts, and merchandises that discharge radiation (Tucker, 2010).
NHTSA(National Highway Traffic Safety Administration) has theresponsibility of monitoring risks and setting standards for highwaysand automobiles. OSHA (Occupational Safety and Health Administration)has the responsibility of guaranteeing healthful and safe workingenvironment for workers by formulating and enforcing principles andoffering assistance, education and training. EPA (EnvironmentProtection Agency) has the responsibility of shielding theenvironment and human health through enforcing its regulations andenvironmental laws passed by the Congress (Tucker, 2010).
Conant,M. (2008). TheConstitution and economic regulation: Objective theory and criticalcommentary.New Brunswick, NJ: Transaction Publishers.
Jacobson,J. M., & American Bar Association. (2007). Antitrustlaw developments (sixth).Chicago, Ill: Section of Antitrust Law, ABA.
Tucker,I. B. (2010). Microeconomicsfor today.Mason, OH: South-Western Cengage Learning.