Question

Monopolistic Competition

Economists generally agree that U.S. antitrust policy is complex, changing over time, divided among several U.S. federal government agencies, and subject to frequent court reversals. The underlying question remains whether the U.S. needs more or less regulation of market structures.

Key questions are:

Are U.S. markets becoming less competitive because of mergers and acquisitions?

Are U.S. markets becoming more competitive because of new technology?

Are U.S. markets becoming more or less competitive because of globalization?

Is enough information available for wise antitrust enforcement?

**Note: Please provide a different answer from the other chegg answers of this same question. Thank you**

Answer 1

1. Are U.S. markets becoming less competitive because of mergers and acquisitions?

In many industries, like airlines, telecommunications, health care and beer, mergers and acquisitions have increased the market power of big corporations in the last several decades. That has hurt consumers and is probably exacerbating income inequalities.

Consolidation might have contributed to the trend of some businesses earning “super-normal returns” that are about 10 times as large as the median returns, up from three times in the early 1990s. This trend may have driven the rise in income inequality by increasing the income of executives and shareholders of those businesses relative to everybody else.

In theory, M&A can have either positive or negative effects on the economy. In the past, many economists justified M&A by arguing that the newly formed, larger firms will be more efficient. That is, they’ll be able to deliver goods of the same quality at lower prices than before or will offer new and better products to consumers. But M&A also increases the size of firms, giving them a more dominant position in markets. This enhanced market power results in higher rather than lower prices for goods of the same quality as before.

2. Are U.S. markets becoming more competitive because of new technology?

From the newest consumer gadgets to the explosion in communications capability that is driving global economic growth, technological innovation enhances our lives and provides us with new tools to perform everyday tasks.

The Federal Trade Commission promotes competition in technology industries (like computers, software, communications, and biotechnology) as the best way to reduce costs, encourage innovation, and expand choices for consumers. Because the stakes are high in these fast-paced markets and the benefits to consumers and to the economy substantial, the FTC’s work in these areas is all the more important.

Technology markets can present some unique issues and challenges for policy makers, manufacturers, distributors, and consumers. Innovation is a central aspect of rivalries among technology firms, and the markets are dynamic: new ideas topple formerly dominant technologies and consumers line up to buy products that are smaller, faster, and better. But the fundamental principles of antitrust law and economics are equally applicable to even the newest industries.

3. Are U.S. markets becoming more or less competitive because of globalization?

First, globalization means that economic activity flows in both directions; although we may lose jobs to foreign workers, we also may gain jobs and boost economic activity. For example, data suggest that, in terms of office work, the U.S. insources far more than it outsources; that is, just as U.S. firms use the services of foreigners, foreign firms make even greater use of the services of U.S. residents.

As incomes grow in other countries, so does their demand for goods and services, many of which those countries will not be able to produce—just as the U.S. does not. This rise in foreign demand for imports is an opportunity for U.S. firms to compete to provide those products.

Globalization can help increase productivity growth in the U.S. According to one estimate, the globalized production of IT hardware—that is, the offshoring of computer-related manufacturing, such as Dell computer factories in China—reduced the prices of computer and telecommunications equipment by 10%-30%. These price declines boosted the spread of IT throughout the U.S. economy and raised both productivity and growth.