economics chap.9 lesson 4 sec.3

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?