Promoting and Protecting Competition

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Presentation transcript:

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

Perfect Competition Prices set by supply and demand Many buyers and sellers

Monopoly No competition or a substitute good High prices & low quality products Sherman Anti-trust Act (1890) banned illegal business combinations and monopolies

Examples of Monopolies Broken up by the Government AT&T in 1974 J.P. Morgan’s Northern Securities in 1904

John D. Rockefeller’s Standard Oil in 1911

Microsoft in 2004

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

Oligopoly Market controlled by a few – LEGAL Ex. Soft drinks, Cell phone providers, Airlines, Car manufactures

Mergers Combination of businesses – LEGAL as long as the merger does not create a monopoly.

Horizontal Mergers Merger of “like” companies for efficiency. Ex. BellSouth/Cingular/SBC/AT&T

Vertical Merger Merge different levels/stages of production. Ex: Hog farm & trucking company

Conglomerates Merger of various businesses for profit Ex. GE – electricity, insurance, real estate, NBC