How were corporations able to form monopolies?

Example: McDonald’s

What ingredients are necessary to make a Big Mac?

beefcheese

lettuce

tomatoonion

mustardsauce

bread

sesame seedspickles

How does McDonald’s get all of their ingredients?

Do they own their own lettuce farms?

Do they own their own cattle ranches?

Do they own their own bakery?

Do they own their own mustard plant?

NO!They pay other companies to grow their produce, raise the

cattle, bake the bread, and produce all of the other ingredients they need.

The price McDonald’s charges is driven, in part, by what they have to pay these

other companies…

… and in part by the need to attract customers who might, instead, go to the

competition.

With what companies does McDonald’s compete for business?

How can McDonald’s attract customers who might go to the competition?

1) Make a better product

2) Lower the price

What can McDonald’s do to lower prices to attract more customers?

1) Use cheaper ingredients

2) Operate at a loss

3) Cut down on costs

If McDonald’s was going to cut down on costs without sacrificing quality of

product or service, what could they do?

Buy up all the other companies they deal with, giving McDonald’s control of the entire process of making and

delivering hamburgers

Buy up the cattle ranches

Buy up the farms

Buy up the bakeries

Buy up the transport companies

Result: Lower long-term costs

With lower costs, McDonald’s can lower their prices.

If they lower prices enough, what will happen to the competition?

With no competition, what can McDonald’s do to prices?

With high prices, consumers lose.

This is called a monopoly.

One company has taken control of the entire fast food hamburger market.

Companies like U.S. Steel and Standard Oil formed monopolies just like this.

The government recognized the damage to consumers and outlawed monopolies.

Some monopolies, however, are legal. What are some examples?

P,G & EPacific Bell

A,T & T Cable

San Jose Water Company

In other words, PUBLIC UTILITIES

Why would public utilities be legalized monopolies?

If companies competed to sell us water, electricity, gas, or cable, each would have to have its own pipes and wires.

That would be a nightmare.

So if monopolies are bad for consumers, aren’t they ALWAYS bad?

To prevent the utility monopolies from having too much control, the government regulates them.

The regulatory agency is called the Public Utilities Commission.

So monopolies are either illegal or regulated.