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Lecture 19, Anti-trust in the information industry

This lecture covers the history and economics of monopoly and antitrust, objectives and mechanics of antitrust regulation, and (possibly) price discrimination in online environments.

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History of U.S. antitrust legislation

Respond to industries with rapid consolidation and domination: railroads, steel.
“Trust” happens when firms get together and form collusion between competing firms.
To prevent this:

• Sherman act (1890) limits collusion between competing firms -> but firms merge.
• Clayton Act (1914) limits anti-competitive mergers and acquisitions
• Federal Trade Commission Act (1913) - antitrust regulator + consumer protection agency

Elements of antitrust

1. Collaborations and collusion (antitrust)
2. Anti-competitive practices by firms with market power (abuse of dominace)
3. Anti-competitive mergers and acquisitions
4. consumer protection

Market definition and substitutes

Coffee example: fast food coffee vs. local coffee

Measuring concentration:

1. define the market
2. measure the current market concentration (HHI, Herfindahl-Hirschman Index, sum of the squares of the market shares of ®the 50 largets firms in a market)