IV

Economics 32
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 SIC 2332.
        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. Types of business integration (mergers) to form business trusts 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 coal and iron minors, 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 made horizontal mergers difficult
      3. The 1960's and 1970's were the time of conglomerates, 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. 1990's brought a return to mergers, many of them between international companies.
II. Antitrust laws
     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 unwanted business practices.
     D. Robinson-Patman 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 Ant merger Act of 1950 made the purchase of assets of
         another company illegal if the purchase would substantially lessen competition.