Ten Principles of Economics - Part 33. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. | CHAPTER 15 MONOPOLY 331 By turning some private monopolies into public enterprises By doing nothing at all INCREASING COMPETITION WITH ANTITRUST LAWS If Coca-Cola and Pepsico wanted to merge the deal would be closely examined by the federal government before it went into effect. The lawyers and economists in the Department of Justice might well decide that a merger between these two large soft drink companies would make the . soft drink market substantially less competitive and as a result would reduce the economic well-being of the country as a whole. If so the Justice Department would challenge the merger in court and if the judge agreed the two companies would not be allowed to merge. It is precisely this kind of challenge that prevented software giant Microsoft from buying Intuit in 1994. The government derives this power over private industry from the antitrust laws a collection of statutes aimed at curbing monopoly power. The first and most important of these laws was the Sherman Antitrust Act which Congress passed in 1890 to reduce the market power of the large and powerful trusts that were viewed as dominating the economy at the time. The Clayton Act passed in 1914 strengthened the government s powers and authorized private lawsuits. As the . Supreme Court once put it the antitrust laws are a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. But if we do merge with Amalgamated we ll have enough resources to fight the anti-trust violation caused by the merger. 332 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY The antitrust laws give the government various ways to promote competition. They allow the government to prevent mergers such as our hypothetical merger between Coca-Cola and Pepsico. They also allow the government to break up companies. For example in 1984 the government split up AT T the large telecommunications company into eight smaller companies. Finally the .
