Abstract
Antitrust agencies patrol the main streets and the back alleys of industries in search of violations of antitrust laws. I review the two main forms of antitrust violation: structural and behavioral. In the second half of the chapter, I turn to tactics that managers use to evade and thwart antitrust agents. The tactics belong to four categories: structural, behavioral, legal, and “capturing.” Before closing, I suggest that trustbusters and managers always have the option of changing the game that they play: stop fighting and go for arbitration. That is, they may seek regulation instead. This suggests that antitrust and regulation are two sides of the same coin.
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Appendix: A Model of Regulatory Capture
Appendix: A Model of Regulatory Capture
In this Appendix I present a model of an economy in which managers capture regulators. Again, the model is interesting because it has properties that are not quite obvious.
The model describes the ecology of two interacting populations: managers and regulators. The ecology is perfectly described by the Lotka-Volterra model of predators and preys (Kemeny and Snell 1972). In the simplest version of the model, there are two linear differential equations, one describing the evolution of regulators (R) and the other the evolution of managers (M):
All four coefficients in these two equations have positive values:
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a 1: Attracted by the success of current managers, aspiring managers appear at a rate proportional to the size of current managers. This is a birth rate.
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a 2: At any moment, some managers become prey to regulators at a rate proportional to the intensity of their interaction. This is a death rate.
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b 1: At any moment, a proportion of regulators will have outgrown their usefulness to managers, lose their political and financial support, and atrophy. This is also a death rate.
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b 2: At any moment, new regulators emerge at a rate proportional to the intensity of interaction between managers and regulators. New regulators appear because managers try to recruit regulators who will suppress rivalry, or because new regulators emerge to compete with existing regulators for a piece of the pie. This is a birth rate.
The most interesting property of the ecology is that it is circular. In Fig. 13.6, the ecology moves counterclockwise on a loop. (The precise loop on which the ecology travels is a matter of historical accident.)
A loop has four phases:
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Phase I: Regulators rise; managers decline.
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Phase II: Regulators decline; managers continue their decline.
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Phase III. Regulators continue to decline; managers turn the corner and begin to grow.
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Phase IV. Regulators stage comeback; managers continue to grow.
Since the economy circulates like a horse on a race track, it is convenient to speak of average values once around the track (Kemeny and Snell 1972, p. 29). These values may be found by solving for the “equilibrium” of the two differential equations Eq. 13.1 and Eq. 13.2:
M ∗ = b 1/b 2
R ∗ = a 1/a 2
The striking lesson here is: The population of managers over a cycle depends entirely on the characteristics of the population of regulators, and vice versa.
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Lee, L.W. (2019). Trustbusters. In: Industrial Organization. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-26237-2_13
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DOI: https://doi.org/10.1007/978-3-030-26237-2_13
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