economics chap.9 lesson 4 sec.3
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Competition and Monopolies for Texas Tech HighTRANSCRIPT
The 3 StoogesChapter 9 Lesson 4Section 3 page 158
COMPETITION & MONOPOLIES
WHO encourages competition in the economy?The governmentencourages competition in the economy.
Federal laws & regulatory agencies
MONOPOLIES have no competition.Can they be forced to act more competitively?
Example: Federal Trade Commission
ANTITRUST LEGISLATION
Followed the rise of big businesses
After the CIVIL WAR fueled industrial
expansion
OIL
Drove competition out of business
&
Pressured customers NOT to buy from RIVALS
NOTORIOUS
Owned by
JOHN D. ROCKEFELLER
What was his secret? Is he to be placed on a pedestal for others as a "CAPTAIN OF INDUSTRY?" Or should he be demonized as a "robber baron." A ROBBER BARON, by definition, was an American capitalist at the turn of the 19th century who enriched himself upon the sweat of others, exploited natural resources, or possessed unfair government influence.
America's first billionaire.
http://www.ushistory.org/us/36b.asp
Got Standard Oil’s board members onto boards of rivals
SO essentially the same people controlled both companies
= reduced temptation to compete with each other
INTERLOCKING DIRECTORATE
= Majority of 1 board serves as board of rival company
Growing public pressureAgainst his oil monopoly, or trust.
1890
Congress passes the Sherman Antitrust ActImportant ANTITRUST LEGISLATION
= Federal & state laws preventing new monopolies from forming & breaking up those already existent
Sherman Antitrust ActVAGUE
1914 Country needs better
antitrust provisions
Prohibits/limits certain specific business practices that lessened competition substantially.
The Clayton
Act
substantially UNCLEAR!
Federal government decides if the merger of 2 corporations will lessen competition.
Table page 159 Antitrust Legislation
Federal Laws& Functions
Sherman Antitrust Act1890
Outlawed agreements & conspiracies restraining interstate trade.
Illegal to monopolize any part of interstate
commerce.Even attempts.
CLAYTON Act 1914
PRICE DISCRIMINATION restricted
?
Selling a good at different
prices to different people
Sellers cannot prevent buyers from dealing with
competitors.OUTLAWED
1.
2.
Interlocking directorates betw. rivals
Mergers that substantially reduce competition
ACT
Set up the FTC / an independent antitrust agency
19 14
I’ve got the POWER
To take private
companies to court
for unfair trade
practices
ROBINSON-PATMAN ACT 1936Amendment to the Clayton act of 1914
STRENGTHENEDLaw against charging different prices for same
product to different buyers
Celler-Kefauver ANTIMERGER Act
1950
STRENGTHENEDLaw against firms joining together to CONTROL
too large a part of the market
Hart-Scott-Rodino ANTITRUST IMPROVEMENTS Act
1976
1. Restricted mergers that would reduce competition2. Required big corps. planning to merge to notify the FTC /Dept. of Justice, who’d decide whether to challenge the merge under the terms of the Clayton act of 1914
In general ANTITRUST LAWS address the harmful effects of mergers
r x a combined co. resulting when one corp. buys more than ½ the
stock of another, thus gaining control of 2nd corporation.
b 3 TYPES of MERGERS
1. Horizontal
Large corp. made up of smaller corps dealing in
unrelated businesses
p. 160
2VertIcal
3.Conglomerate
What’s that?
HORIZONTAL
Two corps. in same business merge
1 brewery buys out another
EXAMPLE:
2 supermarkets, 2 food manufacturers
VERTICAL Two corps. involved in a supply chain merge
EXAMPLE: Food manufacturer
& a farm
Google acquired mobile-device
maker Motorola Mobility & will
make smart phones and
television set-top boxes.
AMAZON’s Kindle Fire tablet
represents its bridge between hardware & e-
commerce.ORACLE
bought Sun Microsystems & now champions engineered
systems (integrated hardware-&-software devices).
Software giant
Microsoft now makes
hardware for its Xbox gaming system
http://business.time.com/2012/03/16/how-apple-made-vertical-integration-hot-again-too-hot-maybe/
CONGLOMERATE
HUGE
4 or more unrelated businesses
Example:
P&G
FOODPringlesMAKEUP
Cover Girl
LAUNDRY DETERGENT
TOOTHPASTE
Figure
Mergers on page 161
HORIZONTAL
VERTICAL
CONGLOMERATE
DAIMLER-BENZ
Bought?
HORIZONTAL MERGER
Which kind of merger?
ANDREW CARNEGIEFrom rags to riches
Born in Scotland, emigrated to the States at the age of 13
CARNEGIE STEEL COMPANY
bought
?
Mines
RAILROADS
SHIPS
Which kind of merger?
VERTICAL
CARNEGIE STEEL COMPANY
One of the highest profile philanthropists of his era
With his fortune, he built Carnegie Hall, and founded the Carnegie Corporation of New York, Carnegie Endowment for International Peace, Carnegie Institution for Science, Carnegie Trust for the Universities of Scotland, Carnegie Hero Fund, & the Carnegie Museums of Pittsburgh, among others.
Carnegie Mellon University Pittsburgh, PA
en.wikipedia.org/wiki/Andrew_Carnegie
LAST, but not least Conglomerate Merger
4 or more unrelated businesses
Example:
Famous examples from the 1960s include Ling-Temco-Vought, ITT Corporation, Litton Industries, TextroTeledyne, Gulf+Wester, AT&T, and
Transamerica.
What’s that?
Walt Disney Co. & ABC
Walt Disney Co. & ABC
Conglomerate Merger
PROCTER & GAMBLEWhich kind of merger?
CONGLOMERATE
Cosmetics
PROCTER & GAMBLEFood
PROCTER & GAMBLE
Personal Care Products
Household Care ProductsLaundry Detergent
PROCTER & GAMBLE
Household Care ProductsDISH DETERGENT
PROCTER & GAMBLE
Gov. uses antitrust laws to foster competition
What else is used?
Direct regulation of business pricing & product quality.
Table 17 page 161
REGULATORY AGENCIES
Exist at LOCAL, STATE &
FEDERAL levels
Oversee many
industries & services
FEDERAL TRADE COMMISION 1914Regulates:2.Unfair competition methods in interstate commerce3.Fraud in advertising
FTCstands for
FOOD & DRUG ADMIN. 1927
Regulates P_____ & S_____PURITY SAFETY
Deals with1. F2. D3. C
FOODDRUGSCOSMETICSstands for
FEDERAL COMMMUNICATION COMMISSION
FCCREGULATES TV/radio/telegraph/phonePartial- satellite transmissions & cable TV
1934
stands for
C stands for
SECURITIES & EXCHANGE COMMISSION
Regulates sale of1. 2.
3.Other investments
StocksBonds1934
Equal Employment Opportunity Commission
1964EEOC aims to reduce Discrimination based on
1.2.
3.
4.
5.Religion
Gender
RaceNationality
Age
OSHA
Occupational Safety & Health Admin.
1970
Regulates the WorkplaceEnsures workers have safe & healthful working conditions
EPA1970
Develops/enforces standards for: AIR, WATER, & TOXIC WASTE
NRC
Nuclear Regulatory Commision
Regulates nuclear power industryLicenses & Oversees the 1 / 2 / 3
1974
Design/Building/Operation of Plants
page 162Government regulations aim to promote efficiency & competition
WASN’T HAPPENING IN THE 80’s/90’s
Government reduced regulations/control over business
WHY?Regulations had actually DECREASED the competition
Which Regulatory Agency?
FCC
Federal Communications Commission
Example of deregulationCompetitive Pay-TV, Cable & Satellite systems
followed deregulation
What would happen to PRICES ifthe government quit it’s role of
MERGER WATCHDOGWhat would happen IF profits became + high?
More SELLERS would manage to enter the marketHow would this impact CONSUMERS? Eventual lower prices/+ competitive
supply of goods & services
$$$
Winding up
page 163
Discussion/Exercises
An ADVANTAGE of FREE ENTERPRISE SYSTEM
WAYS of ORGANIZING BUSINESSES
3 Basic Types
1. Sole Proprietorships2. Partnerships3. Corporations
Can set up business in most profitable way
3.Corporations can get loans/otherwise might not exist
1.Sole Proprietor – own boss/ take risks / $$$
• Which type is greatest in number?• Which has the greatest revenue?
#1
2.Partners share responsibility/risk/$$$
#3
Many CORPORATIONS started out asSole Proprietorships/PartnershipsGROWTH
NEED $$$ Sell StockAverage Joe / an entrepreneur
MKT structures differ
Free enterprise systemDegree of competition varies
1. # firms competing2. Entry difficulty3. # buyers4. MKT info quality
What are the4 types of
MKT structures
1.Perfect Competition2.Monopolistic Competition
3.Oligopoly4.Monopoly
Which is also known as Pure Competition? #1
#1#1
In which do sellers have identical products & no influence on price?Which is the most competitive?
Which has 1 producer? #4
How MKTS are structured
WHO CARES?
COMPETITIONSELLERS + responsive to CONSUMERS
+ Capable Producers are rewarded
Scarce resources / used + efficientlyBUYER gets BEST POSSIBLE price
SO if competition = lower prices
Why have MONOPOLIES?
LOGIC / Folks respond to incentivesExample: Pharmaceuticals $$$/time in research
Public benefits from new drugsCompany recovers $$$
UTILITIES / Monopolies• Costly Startup• Multiple suppliers / unproductive• Better for consumer
BUT by contro l l ing ava i lab le supply, monopol ies can contro l market pr ice .
i.e. withhold output to drive price upSO government regulates what monopolies charge
BELL TELEPHONE (AT&T) monopoly breakupAllowed other long-distance phone services into MKT
Now shall we go to page
165?