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The U.S. government approves most proposed mergers. In a market-oriented economy, firms have the freedom to make their own choices. Private firms generally have the freedom to:

  • expand or reduce production
  • set the price they choose
  • open new factories or sales facilities or close them
  • hire workers or to lay them off
  • start selling new products or stop selling existing ones

If the owners want to acquire a firm or be acquired, or to merge with another firm, this decision is just one of many that firms are free to make. In these conditions, the managers of private firms will sometimes make mistakes. They may close down a factory which, it later turns out, would have been profitable. They may start selling a product that ends up losing money. A merger between two companies can sometimes lead to a clash of corporate personalities that makes both firms worse off. But the fundamental belief behind a market-oriented economy is that firms, not governments, are in the best position to know if their actions will lead to attracting more customers or producing more efficiently.

Indeed, government regulators agree that most mergers are beneficial to consumers. As the Federal Trade Commission has noted on its website (as of November, 2013): “Most mergers actually benefit competition and consumers by allowing firms to operate more efficiently.” At the same time, the FTC recognizes, “Some [mergers] are likely to lessen competition. That, in turn, can lead to higher prices, reduced availability of goods or services, lower quality of products, and less innovation. Indeed, some mergers create a concentrated market, while others enable a single firm to raise prices.” The challenge for the antitrust regulators at the FTC and the U.S. Department of Justice is to figure out when a merger may hinder competition. This decision involves both numerical tools and some judgments that are difficult to quantify. The following Clear it Up helps explain how antitrust laws came about.

What is u.s. antitrust law?

In the closing decades of the 1800s, many industries in the U.S. economy were dominated by a single firm that had most of the sales for the entire country. Supporters of these large firms argued that they could take advantage of economies of scale and careful planning to provide consumers with products at low prices. However, critics pointed out that when competition was reduced, these firms were free to charge more and make permanently higher profits, and that without the goading of competition, it was not clear that they were as efficient or innovative as they could be.

In many cases, these large firms were organized in the legal form of a “trust,” in which a group of formerly independent firms were consolidated together by mergers and purchases, and a group of “trustees” then ran the companies as if they were a single firm. Thus, when the U.S. government passed the Sherman Antitrust Act in 1890 to limit the power of these trusts, it was called an antitrust law. In an early demonstration of the law’s power, the U.S. Supreme Court in 1911 upheld the government’s right to break up Standard Oil, which had controlled about 90% of the country’s oil refining, into 34 independent firms, including Exxon, Mobil, Amoco, and Chevron. In 1914, the Clayton Antitrust Act outlawed mergers and acquisitions (where the outcome would be to “substantially lessen competition” in an industry), price discrimination (where different customers are charged different prices for the same product), and tied sales (where purchase of one product commits the buyer to purchase some other product). Also in 1914, the Federal Trade Commission (FTC) was created to define more specifically what competition was unfair. In 1950, the Celler-Kefauver Act extended the Clayton Act by restricting vertical and conglomerate mergers. In the twenty-first century, the FTC and the U.S. Department of Justice continue to enforce antitrust laws.

Questions & Answers

what is Economic
Dauda Reply
what is 4ps of economic?
thomas Reply
production place Price product
Benedict
Criticism of elasticity
Siddikur Reply
what is unemployment
Gyamfi Reply
ohk thanks
Gyamfi
why is unemployment rapid in the country
Gyamfi
I need more explanation
Odo
what is unemployment
Munanag Reply
not working
Bethel
some one who is willing qualified to work but can't find job
jackie
Bethel...explain? please
Abubakar
some one who is willing to work but can't find job
Hawa
Yes true
Brian
which one please
Hawa
unemployment refers to the ability for someone who is capable and willing to work but could not find a job..
Mnoko
some one who not able to find a job
Dennis
please what is the secret of learning?
thomas
What is stock market?
JOHN Reply
explain the various types of cost curve
Ruth Reply
Short-run average fixed cost (SRAFC) Short-run average total cost (SRAC or SRATC) Short-run average variable cost (AVC or SRAVC) Short-run fixed cost (FC or SRFC) Short-run marginal cost (SRMC) Short-run total cost (SRTC)
Romy
what's economic development and growth
Popoola Reply
what do you understand by Ceteris Paribus?
Gabriel Reply
the external factor will remained constant, except the price
Hasib
explain the uses of microeconomics
Nikita Reply
uses of microeconomics
Nikita
Adam Smith's definition of economics
Sylvia Reply
what is economic deficit
Amjad
this is a situation whereby a nation's outcome or available resources are not enough to the people thereby causing scarcity
Ariel
prices of Quality demanded is equal to Quality supplied
NABUBOLO Reply
it's quantity demand and quantity supplied that's called equilibrium
Romy
no
NABUBOLO
they deal With prices
NABUBOLO
define the elasticity
NABUBOLO
explain different types of elasticity
NABUBOLO
oops 😬 you are right you talk about quality I tell about quantity
Romy
elasticity is the measurement of the percentage change of one economic variable in response to a change in another
Romy
Cross Elasticity of Demand (XED) Income Elasticity of Demand (YED) Price Elasticity of Supply (PES)
Romy
anything else?
Romy
I need to know everything about theory of consumer behavior
Grace
Romy, what is microeconomic?
thomas
How does one analyze a market where both demand and supply shift?
Gabriel Reply
That's equilibrium market
Ramon
but an equlibrum can appear twice on the same market... both in Movement along the Demand/supply curve of shift in the Curve
Gabriel
I Mean on the same curve..
Gabriel
how can consumer surplus be calculated
Franklyn
How can we analyze the effect on demand or supply if multiple factors are changing at the same time—say price rises and income falls? 
Gabriel Reply
because of fall of income, less will be demanded and much will be supply as a result of price rises. Rise in price always motivate new supplier to enter into the system. But it only possible in the short run
Kweku
yeah.. I think Ceteris Paribus is applied in this case
Gabriel
that is the law of Demand is Inversely related to the law of Supply... so that mean a positive change in demand may produce a negative return to supply I think.
Gabriel
what are the difference between Wants and Needs
Gabriel Reply
When the price is above the equilibrium, explain how market forces move the market price to equilibrium. Do the same when the price is below the equilibrium.
Gabriel
economic problems
Manishankar
yeah please Explain
Gabriel
I don't know this is my question
Manishankar
no it was a mistake...😂😂 can you explain how Wants and needs differs 😌
Gabriel
wants is what human desire but might not need them, human want are mostly articles of ostentatious while need is what human must get to live e.g inferior goods
Ramon
what's equilibrium price
james
equilibrium prices is a situation whereby the price of goods supplied equates to the demand
Ariel
this whereby the prices of quality demanded is equivalent to quality demanded
NABUBOLO
wants are numerous desire man that man can do without if not purchased e.g. cosmetic while need are desires that you cannot do without e.g. food
Franklyn
equilibrium price is that level of output were quantity demanded is equal to quantity supplied
Arthur

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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