Market Regulation

Prentice Hall
Roger Sherman  
Total pages
August 2007
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Market Regulation gives students the economic intuition to analyze the history of antitrust and regulation, diagnose current corporate strategy, and evaluate possible policy recommendations. Roger Sherman grounds modern examples in historical context and develops thought-provoking discussions to motivate students from many different majors.

The structure of the text can easily be adapted for use in a variety of courses. Three main sections-antitrust, industry regulation, and social regulation-present the basic theories. The industry regulation chapters (Part II) are self-contained for flexibility, covering specific industries such as communications, postal service, and energy.

“Roger is one of those scholars who is a true credit to the academic world. Not only is he a fine researcher but he has been a great positive influence on graduate students and colleagues over the years. His book is a comprehensive treatment of regulation by one of the best qualified to write such a book.”

-Michael Crew, Rutgers University


  • A flexible organization allows professors to accommodate their course preferences using a set of common introductory chapters followed by several self-contained chapters that serve as illustrative examples of core antitrust and regulatory principles.
  • Informational boxes present illustrative examples of particular chapter topics, numerical examples of theory, or extended mathematical computations.
  • The end-of-chapter summary concisely reviews the main topics to help students retain important lessons.
  • End-of-chapter questions ask students to apply chapter concepts in extended examples. Answers to all questions are available in the Instructor's Manual. Answers odd-numbered questions are provided on the Companion Website.

Table of Contents

1 Introduction to Market Regulation
1.1 Governmental Market Regulation
1.2 The Context of Market Regulation
1.3 Law and Politics

2 Competition as Market Regulator
2.1 The Firm's Production Costs
2.2 Competition as Regulator
2.3 The Economic Welfare Goal of Market Regulation

3 Problems for Competition as Regulator
3.1 Entry and Exit Barriers
3.2 Monopoly
3.3 Differentiated Products
3.4 Externality
3.5 Imperfect Information
3.6 Transaction Costs

4 Focus of the Law: The Modern Business Firm
4.1 The Business Firm and the Market
4.2 The Goal of the Firm
4.3 Corporate Finance
4.4 Hierarchy and Control
4.5 Corporate Mergers
4.6 Vertical Integration and Vertical Restraints

5 Market Structure
5.1 Market Structure
5.2 Duopoly and Oligopoly
5.3 Entry and Conditions
5.4 Concentration Measures
5.5 Empirical Evidence    
Appendix 5.1 Cournot's Solution to Duopoly
Appendix 5.2 Cournot from Monopoly to Many Firms
Appendix 5.3 Entry in the Cournot Model
Appendix 5.4 Stackelberg's Leader-Follower Solution

6 Market Strategy
6.1 The Tools of Strategy    
6.2 Price Competition Among Few Firms    
6.3 Non-Price Competition    
6.4 Advertising    

7 Market Innovation
7.1 Intellectual Property and Technological Change    
7.2 Appropriating Gains from Innovation    
7.3 Patents and the Appropriability of Gains    
7.4 Market Structure and Incentive for Innovation    
7.5 Patent Races and Other Dynamic Effects of Competition    
7.6 The Internet as an Example of Major Innovation    

8 The Origin and Development of Antitrust Law
8.1 The Beginnings of Antitrust Policy    
8.2 The Sherman Act
8.3 The Clayton and Federal Trade Commission Acts    
8.4 Enforcement Agencies and Remedies
8.5 Should Courts Oppose Monopoly Conduct or Monopoly Power?    
8.6 Government Control of Mergers
8.7 Unfair and Deceptive Practices    
Appendix 8.1 Horizontal Merger Guidelines
Appendix 8.2 Time Line for Major Antitrust Legislation

9 Applications of Antitrust Law
9.1 The Firm and Market Structure
9.2 The Firm and Market Strategy
9.3 The Firm and Market Innovation    

10 Industry Regulation
10.1 When Competition Fails to Regulate
10.2 Competitive Markets or Government Intervention?
10.3 The Transformation of Regulated Industries    
10.4 Economic Welfare Revisited    

11 Pricing Principles
11.1 Peak-Load Pricing
11.2 Ramsey Pricing
11.3 Nonuniform Pricing
11.4 Access Pricing
Appendix 11.1 Socially Optimal Pricing
Appendix 11.2 Long-Run Marginal-Cost Pricing
Appendix 11.3 Axiomatic Pricing

12 Institutions of Industry Regulation
12.1 Industry Regulatory Agencies
12.2 Regulated Enterprises
12.3 Rate-of-Return Regulation    
12.4 Designing a Regulatory Mechanism    
12.5 Price-Cap Regulation
12.6 The Role of Access in Transforming Regulated Industries
Appendix 12.1 Rate-of-Return Regulation and Its Origins

13 Postal Service
13.1 The Budget-Constrained Public Enterprise    
13.2 Creation of the United States Postal Service    
13.3 Maximizing Welfare or Expenditure
13.4 Ramsey Pricing in the United States Postal Service    
13.5 Unbundling Postal Service Functions    
Appendix 13.1 Budget vs. Welfare Maximizing Prices    
Appendix 13.2 Pricing Guidelines of the Postal Reorganization Act    

14 Communications Services
14.1 The Economics of Telephone Networks    
14.2 Early Regulation of the United States Telephone Industry    
14.3 The Modification of Final Judgment    
14.4 The Telecommunications Act of 1996    
14.5 New Sources of Telecommunications Competition
Appendix 14.1 Double Double Marginalization in a Telephone Network
Appendix 14.2 Tariff Wars After Interconnection

15 Communication for News and Entertainment
15.1 Network Compatibility in Broadcasting    
15.2 Broadcasting as a Public Good    
15.3 Cable Service    
15.4 Convergence of Broadcast, Cable and Telephone, and the Telecommunications Act of 1996    

16 Transportation
16.1 Railroad Transportation    
16.2 Truck Transportation    
16.3 Bus Travel and Urban Transportation    
16.4 Pricing the Road Network    
16.5 Air Transportation    
Appendix 16.1 Major Railroad Legislation    
Appendix 16.2 Major Federal Truck, Bus, and Highway Legislation    
Appendix 16.3 Major Federal Airline Legislation    

17 Energy
17.1 Coal and Nuclear Power    
17.2 Oil    
17.3 Natural Gas    
17.4 Renewable Energy    

18 Electricity
18.1 The Electricity Industry    
18.2 Organization of the Electricity Industry    
18.3 Markets for Power    
18.4 Competition in a Restructured Electricity Industry    
Appendix 18.1 A Transmission Grid Illustration of Congestion Cost
Appendix 18.2 Illustration of Restructured Electricity Industry

19 Social Regulation of Markets
19.1 Externalities    
19.2 Imperfect Information    
19.3 Fairness for Workers    
19.4 Consequences of Firm Failure    

20 Pursuing Social Regulation
20.1 Benefit-Cost Analysis    
20.2 Valuing Nonmarket Objects
20.3 Command and Control Means of Social Regulation
20.4 Tax-Subsidy and Property-Right Means of Social Regulation
20.5 Information as Regulation    

21 Environmental Protection
21.1 Air, Water, and Land Pollution    
21.2 Command-and-Control Means of Protecting the Air
21.3 Pollution-Right Means of Protecting the Air
21.4 Protecting Water and Land
Appendix 21.1 National Ambient Air Quality Standards

22 Worker Protection
22.1 Protection in Markets    
22.2 Employment Discrimination    Laws
22.3 Occupational Safety and Health Laws
22.4 Retirement Security Laws

23 Consumer Protection
23.1 The Courts and Product Liability
23.2 State Laws    
23.3 The Food and Drug Administration
23.4 The National Highway Traffic Safety Administration
23.5 The Consumer Product Safety Commission
23.6 The Federal Trade Commission on Unfair and Misleading Claims
23.7 Consumer Protection for Securities Trading

24 Protecting against Effects of Firm Failure
24.1 Banking Industry Regulation
24.2 Insurance Industry Regulation
24.3 Firm Failure in the Twenty-First Century


Instructor Resources