Promoting and Protecting Competition How does the government work to ensure that free markets are free and that consumers benefit from competition?

Government Regulation of Competition Maintaining Economic Competition: Markets work the best when there are lots of buyers and lots of sellers. This fosters competition which is good for consumers. WHY IS COMPETITION GOOD? Monopolies – market controlled by one business. Often results in high prices and low quality products. - The government has used the Sherman Anti-trust Act of 1890 several times to prevent a single business owner from controlling prices and products. JP Morgan’s Northern Securities in 1904 John D. Rockefeller’s Standard Oil in 1911 AT&T in 1974 Microsoft in 2004

Government Regulation of Competition Natural monopolies – LEGAL: Local utilities like water, electricity, natural gas, cable, etc. – Competition isn’t efficient in these markets, so businesses are allowed to be monopolies but are heavily regulated by the govt. to ensure proper market practices.

Government Regulation of Competition Mergers – combination of businesses – LEGAL as long as the merger does not create a monopoly. The govt. can prevent a merger that will cause one. - Ex: Hog farm & trucking company Ex: BellSouth/Cingular/SBC/AT&T Ex: GE – electricity, insurance, real estate

International Trade One way for the government to promote competition is ensure easy interstate and international trade. When there are more available products and more businesses, consumers are usually better off. Why do countries specialize? Certain countries are very good at producing certain products and terrible with others. The US can’t produce bananas. Most developing countries can’t produce airplanes and cars.

International Trade Economic Interdependence (globalization): No person or nation is truly self-sufficient. We must rely on each other (people and nations) to produce all of the things we want and need. Effects of Globalization: Environmental and Political problems in one country can cause economic problems in many other countries. Governments must enact policies that allow their citizens access to products made in other countries.

International Trade Globalization Costs and Benefits Trade makes us richer and gives us more free time. (allows us to specialize…winners!) Trade creates losers. Trade gives us better products. Trade gives us worse products. Trade destroys culture. Trade gives us access to new culture. Trade can hurt the environment. Trade can help the environment.

International Trade Policies Click here to think about the reasons why many people don’t like the idea of free trade. Click here

International Trade Policies Protectionist Trade Policies: Many nations limit imports to protect domestic producers of the same product. Tariffs: Taxes on imports Trade barriers (quotas): Limits on the number of specific goods that can be imported. Ex: Japanese Cars Sanctions: economic punishments meant to force political change