6.

6 - Monopolies and Competition

Explain how changes in the level of competition can affect price and output levels.

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?

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.

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

US Steel
Formed

in 1901 by J.P. Morgan Combined Andrew Carnegie and Elbert Garys 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%.

J.P. Morgan and Andrew Carnegie

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 worlds richest man. The federal government broke up this monopoly in 1911.

John D. Rockefeller

The Octopus that Controls All

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.

Modern-Day Monopoly Microsoft

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.

Failing Auto Industry

Current OPEC Countries

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.

Mergers
Sometimes

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

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.

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.

Firestone and Ford formed a Vertical Merger

Henry Ford and Harvey Firestone

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

Conglomerates
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.