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In the case, UHS agreed to acquire Ascend Health at an approximate value of $517 million. UHS and Ascend Health own an acute inpatient psychiatric facility. The facility provides diagnosis, treatment, and care of patient suffering from psychiatric condition. In the view of Federal Trade Commission (FTC), the psychiatric care facility is a discrete necessary product that cannot be substituted with other levels of care.
Therefore, “the merger would create a virtual monopoly in the provision of acute inpatient psychiatric services to insured patients in the El Paso/Santo Teresa area” (Federal Trade Commission, 2012). The FTC investigated this merger that aimed at eliminating competition in the market between UHS and Ascend. The FTC considers this competition valuable to the community since it provides lower health care costs, high quality of care, and improved services (Federal Trade Commission, 2012).
Costs associated with antitrust behavior
FTC fines firms which engage in antitrust behaviors. The fines can either be pecuniary (monetary) or non pecuniary (non momentary). In the case, the FTC required UHS to sell an acute inpatient psychiatric facility to settle the complaint. In addition, the commission will acquire a second facility from the group.
Therefore, if the group goes into merger, they are likely to lose two leading facilities. The UHS case was investigated under Celler-Kefauver Act. The Act deals with outlawed asset-purchase mergers that can significantly reduce competition (Meier, Albert, & Brau, 2012).
Monopolies and oligopolies
A monopolist market structure is characterized by a single firm. The market offers products which does not have a close substitute. It does not allow free entry and exit into the industry.
A monopolist demand curve is downward sloping. This implies that as price increases, the monopolist sells less. Therefore, elasticity of demand is necessary for a monopolist. Monopolist pricing is not always at equilibrium. The market clears at the point where marginal revenue equals marginal cost.
Monopolists carry out price fixing with an aim of gaining market power and preventing entry into the industry. A monopolist is a price maker and controls market supply of the good. A monopoly gains power from various sources such as having access to natural resources.
This type of a monopoly is known as a natural monopoly. Also, a firm might be enjoying economies of scale. At this stage of production firms cannot join this industry thus giving rise to a monopoly. An oligopoly market structure is dominated by a few firms. The market structure is characterized by collusions and price fixing (Baker & Bresnahan, 2006)
Inefficiencies caused by monopoly and oligopoly
Monopoly and oligopoly market structures create imperfect competition in the economy. Imperfect competition is characterized by few suppliers and barrier to entry and exit among others. Imperfect competition creates X-efficiency. An example of this inefficiency is the deadweight loss.
It is a cost created by market inefficiency to the society. When monopolists charge high prices, they do not receive the whole amount of the money. A portion is taken by the government in the form of taxes and there is a portion not taken by any player in the economy. It is known as the dead weight loss.
Market inefficiency also creates rent-seeker behavior. This behavior can be two way. Either the government can seek natural resources from the monopolists or oligopolists and give to the citizens, or the firms can seek subsidies for goods from the government. The subsidies turn out to be profits for the firms (Baker & Bresnahan, 2006). An example of an inefficient monopoly is the US Steel company
Beneficial monopolies and oligopolies
There are a number of monopolies are beneficial to the society. For instance, government monopolies are created to provide essential goods and services to the society. An example is the US Postal Services.
Baker. J., & Bresnahan, T. (2006). Economic evidence in antitrust: Defining markets and measuring market power. Retrieved from https://web.stanford.edu/~tbres/research/buccirossi_01_ch01_001-042.pdf
Federal Trade Commission. (2012). FTC puts conditions on UHS’s proposed acquisition of Ascend Health Corporation. Retrieved from https://www.ftc.gov/news-events/press-releases/2012/10/ftc-puts-conditions-uhss-proposed-acquisition-ascend-health
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Meier, M., Albert. S., & Brau, S. (2012). Overview of FTC Antitrust actions in health care services and products. Retrieved from https://www.ftc.gov/