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Economics Chap.9 Lesson 4 sec.3

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Competition and Monopolies for Texas Tech High

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Economics Chap.9 Lesson 4 sec.3

  1. 1. The 3 StoogesChapter 9 Lesson 4Section 3 page 158COMPETITION &MONOPOLIES
  2. 2. 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
  3. 3. ANTITRUST LEGISLATIONFollowed the rise of big businesses
  4. 4. After the CIVIL WARfueled industrialexpansion
  5. 5. OILDrove competition out of business&Pressured customers NOT to buy from RIVALSNOTORIOUS
  6. 6. 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
  7. 7. 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
  8. 8. 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
  9. 9. 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.
  10. 10. Table page 159 AntitrustLegislationFederal Laws& Functions
  11. 11. Sherman Antitrust Act1890Outlawed agreements & conspiraciesrestraining interstate trade.Illegal to monopolizeany part of interstatecommerce.Even attempts.
  12. 12. CLAYTON Act 1914PRICE DISCRIMINATION restricted?Selling a goodat differentprices todifferentpeopleSellers cannot preventbuyers from dealing withcompetitors.OUTLAWED1.2.Interlockingdirectoratesbetw. rivalsMergers thatsubstantially reducecompetition
  13. 13. Set up the FTC / an independent antitrust agency19 14To takeprivatecompaniesto courtfor unfairtradepractices
  14. 14. ROBINSON-PATMAN ACT 1936Amendment to the Clayton act of 1914STRENGTHENEDLaw against charging different prices for sameproduct to different buyers
  15. 15. Celler-Kefauver ANTIMERGER Act1950STRENGTHENEDLaw against firms joining together to CONTROLtoo large a part of the market
  16. 16. 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
  17. 17. 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?
  18. 18. HORIZONTALTwo corps. in same business merge1 brewery buys out anotherEXAMPLE:2 supermarkets, 2 food manufacturers
  19. 19. 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/
  20. 20. CONGLOMERATEHUGE4 or more unrelated businessesExample:P&GFOODPringlesMAKEUPCoverGirlLAUNDRYDETERGENTTOOTHPASTE
  22. 22. DAIMLER-BENZ
  23. 23. HORIZONTALMERGERWhich kind of merger?
  24. 24. ANDREW CARNEGIEFrom rags to richesBorn in Scotland, emigrated to the States at the age of 13
  26. 26. Mines
  27. 27. RAILROADS
  28. 28. SHIPS
  29. 29. Which kind of merger?VERTICALCARNEGIE STEEL COMPANY
  30. 30. 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
  31. 31. 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
  32. 32. Walt Disney Co. & ABCConglomerate Merger
  33. 33. PROCTER & GAMBLEWhich kind of merger?CONGLOMERATECosmetics
  34. 34. PROCTER & GAMBLEFood
  35. 35. PROCTER & GAMBLEPersonal Care Products
  36. 36. Household Care ProductsLaundry DetergentPROCTER & GAMBLE
  37. 37. Household Care ProductsDISH DETERGENTPROCTER & GAMBLE
  38. 38. Gov. uses antitrust laws to fostercompetitionWhat else is used?Directregulation ofbusiness pricing& productquality.
  39. 39. Table 17 page 161REGULATORY AGENCIESExist at LOCAL,STATE &FEDERAL levelsOverseemanyindustries&services
  40. 40. FEDERAL TRADE COMMISION 1914Regulates:2.Unfair competition methodsin interstate commerce3.Fraud in advertisingFTCstands for
  41. 41. FOOD & DRUG ADMIN. 1927Regulates P_____ & S_____PURITY SAFETYDeals with1. F2. D3. CFOODDRUGSCOSMETICSstands for
  42. 42. FEDERAL COMMMUNICATION COMMISSIONFCCREGULATES TV/radio/telegraph/phonePartial- satellite transmissions & cable TV1934stands for
  44. 44. Equal Employment Opportunity Commission1964EEOCaims to reduce Discrimination based on1.
  45. 45. Occupational Safety & Health Admin.1970Regulates the WorkplaceEnsures workers have safe & healthful working conditions
  46. 46. EPA1970Develops/enforces standards for:AIR, WATER, & TOXIC WASTE
  47. 47. NRCNuclear Regulatory CommisionRegulates nuclear power industryLicenses & Oversees the 1 / 2 / 31974Design/Building/Operation of Plants
  48. 48. 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
  49. 49. WhichRegulatoryAgency?FCCFederal Communications CommissionExample of deregulationCompetitive Pay-TV, Cable & Satellite systemsfollowed deregulation
  50. 50. 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$$$
  51. 51. Winding uppage 163Discussion/Exercises
  52. 52. An ADVANTAGE of FREE ENTERPRISE SYSTEMWAYS of ORGANIZING BUSINESSES3 BasicTypes1. Sole Proprietorships2. Partnerships3. CorporationsCan set up business in most profitable way
  53. 53. 3.Corporations can get loans/otherwise might not exist1.Sole Proprietor – own boss/ take risks / $$$• Which type is greatest in number?• Which has the greatest revenue?#12.Partners share responsibility/risk/$$$#3
  54. 54. Many CORPORATIONS started out asSole Proprietorships/PartnershipsGROWTHNEED $$$ Sell StockAverage Joe / an entrepreneur
  55. 55. MKT structures differFree enterprise systemDegree of competition varies1. # firms competing2. Entry difficulty3. # buyers4. MKT info qualityWhat are the4 types ofMKT structures
  56. 56. 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
  57. 57. How MKTSare structuredWHO CARES?COMPETITIONSELLERS + responsive to CONSUMERS+ Capable Producers are rewardedScarce resources / used + efficientlyBUYER gets BEST POSSIBLE price
  58. 58. SO if competition = lower pricesWhy have MONOPOLIES?LOGIC / Folks respond to incentivesExample: Pharmaceuticals $$$/time in researchPublic benefits from new drugsCompany recovers $$$
  59. 59. 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
  60. 60. Now shall wego to page165?