Question

9a. Name three ways in which the Antitrust laws make markets behave more competitively.

9b. What is the difference between Section 1 and Section 2 of the Sherman Antitrust Act, discuss and define?

9c. Explain what the Herfindahl- Hirschman index is, and how it is used by the Department of Justice to decide which mergers to challenge.

Answer 1

9a)

The market behaves competitively when there is antitrust law and it seeks to control the monopoly tendencies. Following are the ways:

• The monopoly powers are controlled by the antitrust authority. Thus, competition remains strong in the economy.
• The anti trust authority declares such combinations null and void that reduce the competition in the market.
• Anti trust laws help to maintain the competition by protecting the small industries and firm against the predatory pricing.

9b)

Section 1 of the Sherman Act, concerned with the conduct of the business and conduct must not be anti-competitive, such as bid-rigging and price fixations.

Section 2 of the Sherman Act is related to the restraining the monopoly practices. Any attempt to make the market monopoly or part of market would be declared as the null and void.

9c)

HH- Index is used by the justice department if the market combination or merger leads to the monopolization of the market or not.

HH-Index is calculated by squaring the share of each firm. The value of HH-Index more than the 1700 would invite the strict action from the Justice departement.