Question

Compare and contrast the economic issues involved in each of the following pairs of terms: 25 points.

A. Rule of reason versus illegal per se

- compare them

- contrast them

B. Antitrust policy versus regulation and deregulation

- compare them

- contrast them

Answer 1

Solution:-

Answer (A)
Rule of reason : Allows competitors to act more freely in the market.

Limiting factual inquiries and jury role.

Lasts long and difficult to administer

Illegal per se :

Rule of reason versus illegal per se

Provides predictablity

Varying intesnsity, express exceptions and defining the conduct

Unfairness to parties whoae actual capablity to injuring consumers,regardless of the parties intent,is very slight and probably non existent.

Answer (B)

The judicial organ for companies in the United States (DOJ) unequivocally agrees with majority of economics upon prosecuting price-fixers and restrict monpolies and illegal trade practices. Such a practice, often called, as tacit collusion, are often discouraged by various antitrust laws (Sherman Act).

The nature and size of such fine is an obvious determinant of whether the firms in operation are conducive to such practices of tacit collusion. A very large sum of money when imposed as a fine, causes not only financial but social and business-related difficulties to the firm.

Such a firm may have to face a severe backlash from business community and may have to bear the blunt of some stringent decisions taken upon its activities. Hence the judicial organ must take into account the political as well as business clout of the firm, the financial strength, market power and popularity of its products, when deciding the amount of fine to be imposed.

Deregulation is the gradual decentralization of economic power and loosening the regulations imposed on the industries to encourage production. This also entails a severe backlash from public mostly because industries sometimes indulge in environment unfriendly practices.

Market fails to produce socially desirable level of output in the presence of negative externalities. The fact that the creator of such externality does not internalize the marginal social cost it leaves on the society is the actual reason for market failure.

Because the private marginal cost of production is low, firm produces too much of a product. A profit-maximizing firm has no incentive to undertake the external cost of its action, and hence, it overproduces the output. There are negative externalities on the part of consumer also when they consume too much of a product which is priced extremely low.To provide an incentive to the creators of externality, government often indulges in regulations and imposes taxes, licensing, permits and other means.