Sherman Act: Section 1 prohibits conspiracies to restrain trade; Section 2 outlaws monopolization. Clayton Act (as amended by the Celler-Kefauver Act of 1950): Section 2 outlaws price discrimination; Section 3 forbids tying contracts; Section 7 prohibits mergers which substantially lessen competition; Section 8 prohibits interlocking directorates. The acts are enforced by the Department of Justice and Federal Trade Commission. Also private firms can bring suit against other firms under these laws.

(a) They would block this horizontal merger (violation of Section 7 of the Clayton Act). (b) They would charge these firms with price fixing (violation of Section 1 of the Sherman Act). (c) They would allow this vertical merger unless both firms had very large market shares. (d) They would allow this conglomerate merger.

Industries composed of natural monopolies subject to significant economies of scale. Regulation based on "fair-return" prices creates disincentives for firms to minimize costs since cost reductions lead regulators to force firms to charge a lower price. Regulated firms may also use "creative" accounting to boost costs and hide profits. Because regulatory commissions depend on information provided by the firms themselves and commission members are often recruited from the industry the agencies may in effect be controlled by the firms they are supposed to oversee. Also industrial regulation sometimes is applied to industries which are not natural monopolies. Because the calculation of a fair return is based on the value of the firm's capital there is an incentive for regulated natural monopolies to increase allowable profits by uneconomically substituting capital for labor.

Industrial regulation is concerned with prices and service in specific industries whereas social regulation deals with the broader impact of business on consumers workers and third parties. Benefits: increased worker and product safety less environmental damage reduced economic discrimination. Two types of costs: administrative costs because regulations must be administered by costly government agencies; compliance costs because firms must increase spending to comply with regulations.

Industrial policy consists of direct government actions to aid specific firms or industries. Antitrust policy and industrial and social regulation restrict the conduct of firms often increasing their costs or reducing their revenues. In contrast industrial policy enhances profits which is why targeted firms view it favorably. Example: A $1 billion Federal government plan to help U.S. firms compete with Japan in developing flat computer screens. Proponents contend industrial policy strengthens critical industries speeds development of new technologies increases labor productivity and strengthens international competitiveness. Opponents charge that industrial policy can substitute the whims of politicians and bureaucrats for the hard scrutiny of entrepreneurs and business executives. They also point to failures of past industrial policies.