II. Antitrust Laws Sherman 1890 monopolies illegal, Clayton 1914 tying contracts, FTC 1914 deceptive business practices, Robinson-Patnan 1936 predatory pricing,
III. The changing role of government regulation regulating agency power lessened in 1980's and varies with political attitudes videos
IV. Antitrust prosecutions based on rule of reason which varies with political attitudes 2 videos
V. Internet Readings
See U.S. Political Economy for one-page topic analysis
I. Understanding monopoly power
A. Society limits abuses of market controlling 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 industries
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.
1. 140 years of antitrust competition ideology of Democrat and Republica Platforms
2. 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.
3. Intellectual Property Law video
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.
IV. Antitrust prosecutions
A. Enforced by the antitrust division of the Justice Department
B. THEODORE ROOSEVELT took on the corporate monopoly
Trusts that control railroad rates and routes and thus destroyed
small towns and farms
C. Rule of Reason
1. Applied by the Supreme Court in a 1911 antitrust case against
Standard Oil of New Jersey and the American Tobacco Company
2. Court stated that behavior must be unreasonable in a competitive
sense and anti-competitive effects must be demonstrated.
3. Both companies were found guilty.
4. The Court ruled that bigness alone was not against the law in
1921 when it ruled that U.S. Steel was not a monopoly even
though it controlled 50% of the market.
5. Bigness alone was prosecuted by the Supreme Court in 1945
as it broke up Alcoa because it controlled 90% of the aluminum
D. Tight enforcement, which began in 1914, ended in the early 1980's.
E. For more information read
1. Rule of reason - Wiki
2. Executive Summary Of The Anti Trust Laws
Ida Tarbell and other investigative journalists were called Muckrakers. She exposed Standard Oil Trust. Working for McClure Magazine and other monthly magazines they help educated the public from 1890 to 1929 in what is known as the Progressive Era.
Books also help the education process.
The Jungle exposure of health violations and unsanitary practices in the early 20th century American meatpacking industry.
The Octopus exposed a large interlocking network of criminal conspiracy that reaches into every part of the U.S. government, other national governments, and most of sector's of societies.
The Bitter Cry of Children exposed the terrible child working conditions. Some tried night school but after working ten hours learning to read was difficult.
1. No Recent Prosecution of Financial Fraud
2. Reinstating Glass-Steagall
V. Internet Readings
A. The Great Recession was aided by poor government
B. Who Makes the Rules 4/13 Economics Intersection
C. Democratic Capitalism vs. Capitalistic Democracy
D. Documentary-of-the-week-FINRA madoff history video 1/5/14
E. Rich world needs to cut red-tape and encourage business
2/22/14 See chart
F. Why Regulation Goes Astray 5/21/14
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