1. 7.6 - Monopolies and Competition
Explain how changes in the level of competition can affect price and output levels.

2. 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?

3. 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.

4. 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

5. 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.

6. 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

7. 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

8. 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.

9. 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

10. MONOPOLIES AND TRUSTS

11. 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%.

12. J.P. Morgan and Andrew Carnegie

13. 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

14. 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.

15. John D. Rockefeller

16. The Octopus that Controls All

17. 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

18. 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

19. 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.

20. Modern-Day Monopoly Microsoft

21. 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.

22. Failing Auto Industry

23. Current OPEC Countries

24. 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.

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

26. 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

27. 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.

28. 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.

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

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

31. 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.