An Analysis on The Effects of The Antitrust Act on The Strategy of Firms

1999 Fiscal Year Final Research Report Summary

• Project/Area Number: 10630044
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Single-year Grants
• Section: 一般
• Research Field: 経済政策(含経済事情)
• Research Institution: OKAYAMA UNIVERSITY
• Principal Investigator: HARUNO Shoji Okayama University, Department of Economics, Professor, 経済学部, 教授 (30136775)
• Project Period (FY): 1998 – 1999
• Keywords: Antitrust Act / monopoly / firm division / market power / market share / Fair Trade Commission / R&D

Research Abstract

It is specified in the Economics Act (specifically, the Antitrust Act) that the Fair Trade Commission (FTC) takes some measures in order to defend minus effects of monopoly and "monopolistic conditions" on the domestic economy. especially the benefits (welfare) of the society. Based on the reason why monopoly and monopolistic conditions rob rent of the society and consumers, it has been conducted that monopolistic market power is curtailed from giant firms by firm division and other methods in the United States in the past. There widely exist mattes nearly monopolized by one firm in not only Japan but also developed countries. When investigating firm behavior, we have traditionally assumed that there is implicitly no Antitrust Act. However, this assumption looses realistic appropriateness. We employed Cournot quantity-setting models of two firms. Then, when the FTC conducts [measures] specified by the Antitrust Act, we considered the effects of such measures on firms' outputs, prices, market shares, and surplus. Among others, as the measures we take up the two cases of firm division and provision of R&D information to rival firms without compensation.
Firm division apparently causes a decrease in a divided firm's profits. In addition, since it leads to increases in consumers' surplus and social welfare, it is an effective method, while it is not effective in order to reduce the market shares of big firms. The optimal strategy of firms is to restrict their outputs to the realm where the FTC allows.
When there is uncertainty about whether the FTC forces a firm with a great market share to provide its R&D information to its rivals without compensation, a subjective probability that the firms about the decision of the FTC will decrease the output of the former, but whether the possibility increases or decreases the rivals' outputs depends on the magnitudes of the probability of the firm and the substitutability between products. Furthermore, the effect of the measures on prices is not determined. The market share and profits of each firm are affected by an applicable possibility of the Antitrust Act. It seems that they are reduced by its possibility. But the effectiveness of the method as disclosure of investment information is not so great.