Rationale for Regulation and Antitrust: Failure to effectively realize a well-functioning competitive market.

Antitrust: Policy response to mergers and industrialization of the US in the post-Civil War era.

Early concern was for cartels and monopoly (sections 1 and 2 of the 1890 Sherman Antitrust Act).

More recent focus on mergers and other financial transactions that might impair competition.

Fundamental Antitrust Question: Protect competitors or enhance the welfare of consumers?

Economic Regulation: Arose from the dilemma of natural monopoly.

Began in the post-Civil War era in the US with the Interstate Commerce Commission to regulate rates charged by railroads.

Dilemma of how to most efficiently regulate rates. Marginal cost pricing in the context of natural monopoly requires a two-part tariff (why?). Rate-of-return regulation that guarantees cost recovery plus a "normal" rate of return generates dynamic incentives for inefficient production (failure to minimize costs, such as "goldplating").

Health, Safety, and Environmental Regulation: Not addressed in this course. The latter is the subject of Econ 423.

Role of the Courts: Judges must interpret general law for particular circumstances. Dicta or court-made law. Precedent-lower courts must follow US Supreme Court in cases involving federal jurisdiction.

Government Failure: Stigler's economic theory of regulatory capture. Public choice theory.