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Antitrust Policy and Regulatory Competition

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Assume you are the owner-manger of an innovative computer software company, and your latest product is so revolutionary and superb it has resulted in your company controlling 98% of the industry in terms of total sales.

a. Should your company be broken up into smaller companies, and/or severely regulated by the government to foster greater competition? Why or why not?
b. Who would gain and who would lose from such government intervention? Explain.

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a. Should your company be broken up into smaller companies, and/or severely regulated by the government to foster greater competition? Why or why not?

This is a matter of promoting and protecting consumer interest by increasing the competition and reducing the monopoly. Antitrust policy has more than a century of honorable history in the United States. In the United States antitrust investigations and enforcement are managed jointly by two agencies, the Antitrust Division of the Justice Department and the Federal Trade Commission (FTC) -- the latter of which is directly concerned with fair trade practices. The concept of antitrust has also gone global. Antitrust laws form part of the competitive environment in a number of countries; the European Union has forged an aggressive antitrust policy -- known there as competition policy.

Antitrust policy has more than a century of honorable history in the United States. In the United States antitrust investigations and ...

Solution Summary

Who would gain and who would lose from such government intervention in 597 words.

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Antitrust Policy and Regulation

In 1993 Mattel proposed acquiring Fisher-Price for $1.2 billion. In the toy industry Mattel is a major player with 11 percent of the market. Fisher-Price has 4 percent. The other two large firms are Tyco, with a 5 percent share, and Hasbro, with a 15 percent share. The other two firms are Tyco, with a 5 percent share, and Hasbro, with a 15 percent share. In the infant/preschool toy market, Mattel has an 8 percent share and Fisher-Price has a 27 percent share, the largest. The other two large firms are Hasbro, with a 25 percent share, and Rubbermaid, with a 12 percent share.

a) What are the approximate Herfindahl and four-firm concentration ratios for these firms in each industry?
b) If you were Mattel's economist, which industry definition would you suggest using in court if you were challenged by the government?
c) Give an argument why the merger might decrease competition.
d) Give an argument why the merger might increase competition.

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