Free Business Book Summaries
I. Understanding monopoly power
A. Society is concerned with the abuse of monopoly power which is the ability to control market activity.
B. The economic effects of monopoly power are higher prices, a smaller quantity sold, and economic rent to owners.
C. Measuring the amount of industry concentration
1. Standard industrial classifications (SIC) divide industries into homogeneous concentrations such as apparel
(23), male (3), and nightwear (2), resulting in an SIC of 2332.
1997 NAICS and 1987 SIC Correspondence Tables.
2. Concentration ratios measure the % of total industrial activity in LIKE sales and employment for oligopoly
a. Four company industries are the most common.
b. Evidence is mixed as to whether concentration ratios are changing .
c. Increased inter-industry mergers and international competition make analysis difficult.
d. Concentration rations are available from the US Census Bureau.
D. Types of business integration (mergers) to form business trusts which were allowed to exist by
a Supreme Court that put liberty of contract ahead of personal liberty during the Gilded Age.
1. Horizontal integration results from a merger of competing companies. Standard Oil was form by
controlling refining and transportation of oil.
2. Vertical integration results when companies that have supply dealings merge. U.S. Steel was formed
with the merger of miners of coal and iron, transportation to smelters and sale of steel.
E. A brief history of the merger movement
1. The late 19th century brought trusts (controlling corporations by controlling their boards of directors) and
the need for antitrust laws to regulate the many horizontal mergers of America's Gilded Age.
2. The 1920's brought vertical mergers as antitrust laws had made horizontal mergers difficult
3. The 1960's and early 1970's was the time of conglomerates, which combined unrelated businesses.
4. The 1980's brought corporate raiders who broke up conglomerates, many using junk (high risk) bonds
to finance leverage (high debt) buyouts.
5. The 1990's brought a return to mergers, many of them combining international companies.
F. Price fixing from Wikipedia
A. Sherman Antitrust Act of 1890 made monopolies and attempts to monopolize illegal.
Combinations, contracts, and conspiracies in restraint of trade were made illegal.
B. Clayton Act of 1914 prohibited tying contracts (tying the purchase of product A to
the purchase of product B), price discrimination, and stock ownership of competitors which
would substantially lessen competition.
C. Federal Trade Commission Act of 1914 created the FTC to control deceptive business practices.
D. Robinson-Patnan Act of 1936 made predatory pricing illegal
E. The Wheeler-Lea Act of 1938 amended the FTC Act to make unfair and deceptive trade illegal.
F. Celler-Kefauver Antimerger Act of 1950 made the purchase of assets of another company
illegal if the purchase would substantially lessen competition.
III. The changing role of government regulation
A. Before there was regulation there was ANDREW JACKSON who
took on the eastern bankers because he felt it had excessive power.
B. Important regulating agencies
1. Interstate Commerce Commission (ICC)-rails and trucking
2. Federal Aviation Administration (FAA)-air travel
3. Federal Communications Commission (FCC)-airways
4. Securities and Exchange Commission (SEC)-issuers of financial
instruments such as stocks and bonds
C. A move toward deregulation began by Margaret Thatcher in the 1970's
spread to the United States and Western Europe in the 1980's.
1. Many felt federal government regulation represents a costly and
inefficient misallocation of economic resources.
2. Railways, trucking, airlines, and financial institutions were deregulated
in the late 1970's and 1980's.
a. Some deregulation activities were very costly (financial institutions
bailout of the late 1980's)
b. Overall, the jury is still out on the success of deregulation.
D. Regulators are redirecting efforts away from maintaining competition
toward social regulation.
1. Government regulation of industry has changed direction.
a. International competition requires companies work together to
develop technology and share in its high costs.
b. Many feel government should foster cooperation among competitors
with an industrial policy.
c. Others feel the market system should be left to direct resource (factor)
2. Regulation protecting individuals has become more prominent.
a. Environmental Protection Agency (EPA) protects individuals from
pollution (air, water, noise).
b. Consumer Protection and Safety Commission (CPSC) protects
consumers from unsafe products.
c. Food and Drug Administration (FDA)
cosmetics, etc. See The Jungle a famous exposť
of the meatpacking industry.
d. Federal Trade Commission (FTC) protects the consumer from unfair
trade practices such as deceptive advertising.
e. Occupational Safety and Health Administration (OSHA) protects
people while at work.
f. Equal Employment Opportunity Commission (EEOC) attempts to
eliminate workplace prejudice.
g. National Labor Relations Board (NLRB) regulates activities between
business and unions.
Frances Perkins the longest serving U.S. Secretary of Labor (1933 to 1945) was first woman appointed to the U.S. Cabinet. She executed many aspects of the New Deal, including the Civilian Conservation Corps, the Public Works Administration and its successor the Federal Works Agency, and the labor portion of the National Industrial Recovery Act. With the Social Security Act she established unemployment benefits, pensions for the many uncovered elderly Americans, and welfare for the poorest Americans. She pushed to reduce workplace accidents and helped craft laws against child labor. Through the Fair Labor Standards Act, she established the first minimum wage and overtime laws for American workers, and defined the standard forty-hour work week. She formed governmental policy for working with labor unions and helped to alleviate strikes by way of the United States Conciliation Service. Perkins resisted the drafting of American women to serve the military in World War II so that they could enter the civilian workforce in greatly expanded numbers. Her attemptto include National Health Care in the Social Security bill was stopped by the AMA.
1. Red tape rising The regulatory state is expanding sharply. But Barack Obama
hints that there may be moderation ahead. from Economist Magazine
2. Positive results from government regulation
3. HD Thoreau concerning Government Regulations
Why Current Methods to Combat Climate Change Donít Work
Did market failures cause the 200-08 financial crisis? 12/3/14
Challenges in Measuring Regulatory Capture/ 6/22/16
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