Monopolies,Pools, and Trusts

A Monopoly: What Is It?

• A single seller of a product (good or service).–Monos: single, alone– Polo: to sell

• Lack of Competition means– Higher Prices– Inferior Goods and Services– Less Innovation

• Competition is the rivalry of two or more parties over something.

Competition

Do you try harder when you’ve got competition? So do businesses!

Think of two runners in a race…

Store A

Monopolies and Competition

$200$190

$180$170$160

$150$150

Store B

Store A

Monopolies and Competition

Store B

$150

$200

Monopolies: Real Life Examples

De Beers

• A “family” of diamond companies.

Microsoft

• United States v. Microsoft

Local Water Company

• The only provider for that service in your area.

Pools

• A voluntary agreement among companies that– sets production quotas– fixes prices– allocates sales and market territories

• Monopolistic• Emerged before trusts• After pools were struck down in courts, trusts

emerged

Trusts

• Emerged in late 19th century• Intended to monopolize business• Standard Oil Trust: first well-known trust• Before we delve into industrial trusts, let’s take

a look at what a legal trust is!

A Trust Fund

• A trust is like a holding pen for your money or assets.

• A trust has 4 components:– The grantor– The beneficiary– The assets– The trustee

Trusts (Monopolies)

Stockholders turn over stock to board of trustees.

Many smaller, competing firms merge into one big company.

The trust can manage the companies without owning them!

Trusts (Monopolies)

• Trust Tactics:– Buy outs– Price undercuts– Long-term customer contracts– Forced customer purchases– Intimidation and violence

• Famous Trusts:– Standard Oil, US Steel, American Tobacco

Company

Trusts (Monopolies)

• In this kind of trust, what are the assets and who is the grantor, beneficiary, and trustee?

Stockholders Trust

Stock

Stock

Breaking Trusts

• 1890: Sherman Antitrust Act

• 1914: Clayton Antitrust Act

• 1914: FTC Act• 1911: Standard

Oil Trust “busted” by government action

Are Monopolies Always Illegal?

• Not always! Only if they violate antitrust laws.

• Think about the Local Water Company…