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Antitrust regulation considerations

Answer the following question in your own words without quoting anyone:

Why do industrial economies find it necessary to have antitrust regulations?
Include in your answer a discussion of the different types of mergers, and
alternatives if any, to antitrust policy.

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Certain types of industries lend themselves to economies of scale only at very high volumes. Thus, when one company can accrue a large number of customers, it can lower its prices far below those of its competitors. Its competitors then go out of business, leaving only the single company.

This single company can then choose to reduce output in order to set MC=MR. This maximizes its profits, but harms social welfare. There is an amount of this product which is ideal for society - it occurs when P=MC for the company. By reducing output so that price exceeds marginal cost, the monopolist ...

Solution Summary

Industrial economies and the necessity of antitrust regulations.