Briefly describe the history o
Briefly describe the history of antitrust policies in the UnitedStates. What are the advantages and disadvantages of highlyconcentrated industries? Does market power encourage or discourageinnovation? Under what circumstances should the government use itsantitrust authority to limit industry concentration and marketpower?
Answer:
The antitrust laws are used by the US government in order toensure that the consumers are protected from unfair tradepractices. They regulate the competition in the market ensuringthat fair competition prevails. In the US, the antitrust laws are acombination of both federal and state laws that regulate themarkets to ensure that the consumer interests are not marginalised.The antitrust laws promote fair competition thereby promotingeconomic efficiency, they essentially ensure that monopolies do notabuse their power and this is done by monitoring corporations. TheUS antitrust laws deal with a variety of issues such as mergers,prices which are fixed by corporations etc. The first antitrust lawdates back to 1890 when the Sherman Act which prohibited monopolieswas passed.
Highly concentrated industries can be understood as industrieswhere very few firms hold significant market power. There are bothadvantages and disadvantages to highlt concentrated industries. Theadvantages of highly concentrated industries are:
i. One advantage to the firms is that they enjoy economies ofscale because of lower average costs.
ii. In highly concentrated industries, the level of innovationmay be higher. The efficiency of the firms would also be morebecause they compete to get more market power.
The disadvantages of highly concentrated industries are:
i. When there is no government regulation, the monopolies canabuse their power leading to allocative and productioninefficiency.
ii. In highly concentrated industries, the firms could gainpolitical power to protect their interests which could reduce thewelfare of consumers.
Market power encourages innovation because firms bringinnovation into their operations with the hope of receivingmonopoly rents. Many scholars believe that there is more innovationin monopoly than there is in competition led industries. Schumpeterhad said that the society must pay the price of having large firmswith power to ensure there is technological progress in thesociety.
The government should step in and regulate when the mergers orindustries where there is high concentration of power could lead tounfair pricing or exploitation of the consumers.
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