7.6 - Monopolies and Competition Explain how changes in the level of competition can affect price and output levels.

Introduction Why is competition good for consumers? What impact can the government have on competition and how does its influence affect both consumers and producers? What are the advantages and disadvantages of a globally competitive market for consumers and domestic companies?

Buyers and sellers Buyers and sellers control the market through the price system. With the buyers demand and the sellers supply an equilibrium price is set and you then have price.

Monopoly A monopoly refers to having only one provider of a product or service in a particular market . There is no competition or a substitute good. Examples of monopolies in U.S. history US Steel Standard Oil Microsoft

Gaining a Competitive Edge Corporations tried to maximize profits in several ways: Paying workers less wages Advertising products Gaining a Monopoloy Monopoly- Complete control of a product. Cartel- businesses making the same product would agree to limit their production and keep the prices high for that particular item. Trusts- Companies assign their stock to a board of trustees, who combine them into a new organization. The trustees run the organization, paying themselves dividends on profits.

CORPORATION FORMATION OWNERSHIP CONTROL AND MANAGEMENT NET PROFITS Organized by associates and legalized through state charter OWNERSHIP Stockholders, according to number of shares CONTROL AND MANAGEMENT Through Board of Directors, elected by the stockholders (usually one vote per share of stock held) NET PROFITS AND LOSSES Dividends: to stockholders = profits Lose: only the amount invested by stockholders according to number of shares LIMITED LIABILITY

BUSINESS ORGANIZATIONS Conglomerate A group of unrelated business owned by a single corporation. Still used today by companies that merge. Pool Competing companies that agree to fix prices and divide regions among members so that only one company  operates in each area. Outlawed today. Trust (Monopoly) Companies in related fields agree to combine under the direction of a single board of trustees, which meant that shareholders had no say. Outlawed today. Holding Company A company that buys controlling amounts of stock in related companies, thus becoming the majority shareholder, and holding considerable say over each company's business operations. Outlawed today. BUSINESS ORGANIZATIONS

BUSINESS ORGANIZATIONS Trusts or Monopoly Companies in related fields combine under the direction of a single board of trustees. Shareholders had no say. Outlawed today.

BIGGER IS BETTER A trust or monopoly controls an entire industry TRUSTS AND MONOPOLIES BIGGER IS BETTER A trust or monopoly controls an entire industry make product cheaper lower prices to customer

MONOPOLIES AND TRUSTS

US Steel Formed in 1901 by J.P. Morgan Combined Andrew Carnegie and Elbert Gary’s steel businesses forming a monopoly on steel. The federal government attempted to use Anti-trust laws and break up US Steel in 1911, but it failed. In its 1st year of operation, US Steel produced 67% of American steel. It now produces about 10%.

J.P. Morgan and Andrew Carnegie

Captain of Industry ANDREW CARNEGIE Monopolized the steel industry Rags to riches story---came from Scotland very poor. Used scientific ideas (Bessemer Process) to develop a better way to produce steel and sell a quality a product for an inexpensive price. Used Horizontal integration. Carneige Picture

Standard Oil Created in 1870, Standard Oil had a monopoly on the oil industry. Created in Ohio by John D. Rockefeller. He became a billionaire and the world’s richest man. The federal government broke up this monopoly in 1911.

John D. Rockefeller

The Octopus that Controls All

Captain of Industry Came from a wealthy family JOHN ROCKEFELLER Captain of Industry Came from a wealthy family Bought a substitute during the Civil War. Formed the first modern corporations in the oil industry Standard Oil Was the first billionaire in the U.S. by 1900. Used Vertical Integration and Horizontal Integration to gain a monopoly in the oil business. Cartoon Rockefeller

Philanthropist Gave millions of his money to hospitals and colleges. JOHN ROCKEFELLER Philanthropist Gave millions of his money to hospitals and colleges. University of Chicago Spellman College National Parks United Nations Williamsburg Cancer Research Rockefeller

Microsoft Microsoft was brought to court in 2001 for monopolistic practices. The settlement attempted to create less of a monopoly. Founded by Bill Gates in 1975.

Modern-Day Monopoly Microsoft

Oligopoly An oligopoly is dominated by a small number of sellers. The American automobile manufacturers would be an example. There are only a few major car manufacturers in the US. Ford General Motors (GM) Chrysler/ Dodge OPEC is another example. Organization of Petroleum Exporting Countries There are a few countries that try to control the production of oil.

Failing Auto Industry

Current OPEC Countries

Competitive Market A competitive market benefits consumers. Competition drives down price and drives up quality. This is why a fastfood restaurant will build beside each other.

Mergers Sometimes companies will join (merge) together to become more powerful. Types of mergers: Horizontal merger Vertical merger Conglomerates Multinational Conglomerates (Globalization)

VERTICAL AND HORIZONTAL INTEGRATION Vertical Integration You control all phases of production from the raw material to the finished product Coke fields Iron ore deposits Steel mills purchased by Carnegie Coke fields Iron ore deposits Steel mills Ships Railroads purchased by Carnegie Coke fields Iron ore deposits Steel mills Ships purchased by Carnegie Coke fields Iron ore deposits purchased by Carnegie Coke fields purchased by Carnegie Horizontal Integration Buy out your competition until you have control of a single area of industry MONOPOLY

Horizontal Mergers A horizontal merger is when two companies competing in the same market merge or join together. An example would be when Bell Atlantic joined with GTE to form Verizon.

Vertical Merger A vertical merger is a merger between two companies producing different goods or services for one specific finished product. By directly merging with suppliers, a company can decrease reliance and increase profitability. An example of a vertical merger is a car manufacturer purchasing a tire company.

Firestone and Ford formed a Vertical Merger Henry Ford and Harvey Firestone

In May of 2000, the Ford Explorer had to issue a recall on all Firestone tires.

Conglomerates never put all of their eggs in one basket. A corporation that is made up of a number of different, seemingly unrelated businesses. Diversification is important. Multinational conglomerates combine more than one country. Conglomerates never put all of their eggs in one basket.