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7.6 - 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
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.
FORMATION
OWNERSHIP
CONTROL AND
MANAGEMENT
NET PROFITS
AND LOSSES
Organized by associates and legalized through
state charter
Stockholders, according to number of shares
Through Board of Directors, elected by the
stockholders (usually one vote per share of
stock held)
Dividends: to stockholders = profits
Lose: only the amount invested by
stockholders according to number of
shares
LIMITED LIABILITY
Trusts or Monopoly
•Companies in related fields
combine under the direction
of a single board of trustees.
•Shareholders had no say.
•Outlawed today.
BIGGER IS BETTER
A trust or monopoly
controls an entire
industry
•make product cheaper
•lower prices to customer
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%.
J.P. Morgan and Andrew Carnegie
Captain of Industry
•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
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.
John D. Rockefeller
The Octopus that Controls All
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.
Philanthropist
•Gave millions of his
money to hospitals and
colleges.
•University of Chicago
•Spellman College
•National Parks
•United Nations
•Williamsburg
•Cancer Research
Rockefeller
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)
Vertical Integration
You control all phases of
production from the raw
material to the finished product
Coke fields
purchased
by
Carnegie
Iron ore deposits
purchased
by
Carnegie
Steel mills
purchased
by
Carnegie
Ships
purchased
by
Carnegie
Horizontal Integration
Buy out your competition until
you have control of a single area
of industry
Railroads
purchased
by
Carnegie
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.