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WHOencourages competition in the economy?The governmentencourages competition in the economy.Federal laws & regulatory agenciesMONOPOLIES have no competition.Can they be forced to act more competitively?Example: Federal Trade Commission
ANTITRUST LEGISLATIONFollowed the rise of big businesses
OILDrove competition out of business&Pressured customers NOT to buy from RIVALSNOTORIOUS
Owned byJOHN D. ROCKEFELLERWhat was his secret? Is he to be placed on a pedestal forothers as a "CAPTAIN OF INDUSTRY?" Or should he bedemonized as a "robber baron." A ROBBER BARON, bydefinition, was an American capitalist at the turn of the19th century who enriched himself upon the sweat ofothers, exploited natural resources, or possessed unfairgovernment influence.Americas first billionaire.http://www.ushistory.org/us/36b.asp
Got Standard Oil’s board membersonto boards of rivalsSOessentially the same people controlled both companies= reduced temptation to compete with each otherINTERLOCKINGDIRECTORATE= Majority of 1 board serves as board of rival company
Growing public pressureAgainst his oil monopoly, or trust.1890Congress passes the Sherman Antitrust ActImportant ANTITRUST LEGISLATION= Federal & state laws preventing new monopolies fromforming & breaking up those already existent
Sherman Antitrust ActVAGUE1914 CountryneedsbetterantitrustprovisionsProhibits/limits certain specific business practices thatlessened competition substantially.TheClaytonActsubstantially UNCLEAR!Federal government decides if the merger of 2corporations will lessen competition.
Sherman Antitrust Act1890Outlawed agreements & conspiraciesrestraining interstate trade.Illegal to monopolizeany part of interstatecommerce.Even attempts.
CLAYTON Act 1914PRICE DISCRIMINATION restricted?Selling a goodat differentprices todifferentpeopleSellers cannot preventbuyers from dealing withcompetitors.OUTLAWED1.2.Interlockingdirectoratesbetw. rivalsMergers thatsubstantially reducecompetition
Set up the FTC / an independent antitrust agency19 14To takeprivatecompaniesto courtfor unfairtradepractices
ROBINSON-PATMAN ACT 1936Amendment to the Clayton act of 1914STRENGTHENEDLaw against charging different prices for sameproduct to different buyers
Celler-Kefauver ANTIMERGER Act1950STRENGTHENEDLaw against firms joining together to CONTROLtoo large a part of the market
Hart-Scott-Rodino ANTITRUST IMPROVEMENTS Act19761. Restricted mergersthat would reducecompetition2. Required big corps.planning to merge tonotify the FTC /Dept. ofJustice, who’d decidewhether to challengethe merge under theterms of the Claytonact of 1914
In general ANTITRUST LAWS address the harmful effectsof mergersra combined co. resulting whenone corp. buys more than ½ thestock of another, thus gainingcontrol of 2nd corporation.3 TYPES of MERGERS1. HorizontalLarge corp. made up ofsmaller corps dealing inunrelated businessesp. 1602VertIcal3.ConglomerateWhat’s that?
HORIZONTALTwo corps. in same business merge1 brewery buys out anotherEXAMPLE:2 supermarkets, 2 food manufacturers
VERTICAL Two corps. involved in a supply chain mergeEXAMPLE: Foodmanufacturer& a farmGoogle acquiredmobile-devicemaker MotorolaMobility & willmake smartphones andtelevision set-top boxes.AMAZON’s KindleFire tabletrepresents itsbridge betweenhardware & e-commerce.ORACLEbought SunMicrosystems & nowchampionsengineeredsystems(integratedhardware-&-softwaredevices).SoftwaregiantMicrosoftnow makeshardware forits Xboxgamingsystemhttp://business.time.com/2012/03/16/how-apple-made-vertical-integration-hot-again-too-hot-maybe/
CONGLOMERATEHUGE4 or more unrelated businessesExample:P&GFOODPringlesMAKEUPCoverGirlLAUNDRYDETERGENTTOOTHPASTE
Which kind of merger?VERTICALCARNEGIE STEEL COMPANY
One of the highest profilephilanthropists of his eraWith his fortune, he built Carnegie Hall, and foundedthe Carnegie Corporation of New York, CarnegieEndowment for International Peace, CarnegieInstitution for Science, Carnegie Trust for theUniversities of Scotland, Carnegie Hero Fund, & theCarnegie Museums of Pittsburgh, among others.Carnegie Mellon UniversityPittsburgh, PAen.wikipedia.org/wiki/Andrew_Carnegie
LAST, but not leastConglomerate Merger4 or more unrelated businessesExample:Famous examples from the 1960s include Ling-Temco-Vought, ITTCorporation, Litton Industries, TextroTeledyne, Gulf+Wester, AT&T, andTransamerica.What’sthat?Walt Disney Co. & ABC
NRCNuclear Regulatory CommisionRegulates nuclear power industryLicenses & Oversees the 1 / 2 / 31974Design/Building/Operation of Plants
page 162Government regulations aim to promote efficiency & competitionWASN’T HAPPENING IN THE 80’s/90’sGovernment reduced regulations/control over businessWHY?Regulations had actually DECREASED the competition
What would happen to PRICES ifthe government quit it’s role ofMERGER WATCHDOGWhat would happen IF profits became + high?More SELLERS would manage to enter the marketHow would this impact CONSUMERS?Eventual lower prices/+ competitivesupply of goods & services$$$
An ADVANTAGE of FREE ENTERPRISE SYSTEMWAYS of ORGANIZING BUSINESSES3 BasicTypes1. Sole Proprietorships2. Partnerships3. CorporationsCan set up business in most profitable way
3.Corporations can get loans/otherwise might not exist1.Sole Proprietor – own boss/ take risks / $$$• Which type is greatest in number?• Which has the greatest revenue?#12.Partners share responsibility/risk/$$$#3
Many CORPORATIONS started out asSole Proprietorships/PartnershipsGROWTHNEED $$$ Sell StockAverage Joe / an entrepreneur
MKT structures differFree enterprise systemDegree of competition varies1. # firms competing2. Entry difficulty3. # buyers4. MKT info qualityWhat are the4 types ofMKT structures
1.Perfect Competition2.Monopolistic Competition3.Oligopoly4.MonopolyWhich is also known as Pure Competition? #1#1#1In which do sellers have identical products & noinfluence on price?Which is the most competitive?Which has 1 producer? #4
How MKTSare structuredWHO CARES?COMPETITIONSELLERS + responsive to CONSUMERS+ Capable Producers are rewardedScarce resources / used + efficientlyBUYER gets BEST POSSIBLE price
SO if competition = lower pricesWhy have MONOPOLIES?LOGIC / Folks respond to incentivesExample: Pharmaceuticals $$$/time in researchPublic benefits from new drugsCompany recovers $$$
UTILITIES / Monopolies• Costly Startup• Multiple suppliers / unproductive• Better for consumerBUT by controlling available supply,monopolies can control market price.i.e. withhold output to drive price upSO government regulates what monopolies chargeBELL TELEPHONE (AT&T) monopoly breakupAllowed other long-distance phone services into MKT