DPQ

DPQ?

Digitally Powered Quad Deliberately Pruned Quince Delicious Pepperoni Quiche Deadly Poisonous Quiver Dave Purposely Quit Dreaded Pop Quiz

DPQ

Digitally Powered Quad Deliberately Pruned Quince Delicious Pepperoni Quiche Deadly Poisonous Quiver Dave Purposely Quit Dreaded Pop Quiz

Big Business and Government

What is a monopoly?

What is a monopoly? Monopoly: one seller. Examples, old

regional phone companies, Alcoa in old days, railroads in old days. Could even by a tiny store if it’s the only one around... i.e., da boyz ‘nade stand (for a fleeting moment)

Monopolies Monopoly causes harm not just by

charging prices higher than they would be with competition, it also affects the total wealth of an economy

Monopolies Monopoly causes harm not just by

charging prices higher than they would be with competition, it also affects the total wealth of an economy

Monopolies cause consumers to buy less at the higher price and cause inefficient use of scare resources that have alternative uses

Monopolies Monopoly causes harm not just by

charging prices higher than they would be with competition, it also affects the total wealth of an economy

Monopolies cause consumers to buy less at the higher price and cause inefficient use of scare resources that have alternative uses

Luckily, monopolies almost impossible to maintain without government protection

More on Monopolies

But they do exist: just take a taxi in New York… or try to, especially in the theater district on a rainy night at 11 p.m.

More on Monopolies

But they do exist: just take a taxi in New York… or try to, especially in the theater district on a rainy night at 11 p.m.

If cabs and drivers were freely allowed to compete, fares would come down and there would be more prosperity

What’s an oligopoly?

What’s an oligopoly?

Oligopoly: a small number of sellers who may cooperate with one another in setting prices; can produce results similar to a monopoly

What’s an oligopoly?

Oligopoly: a small number of sellers who may cooperate with one another in setting prices; can produce results similar to a monopoly

Examples: Four companies control 89% of U.S. wireless market (AT&T, Verizon, Sprint, T-Mobile)

What’s an oligopoly?

Oligopoly: a small number of sellers who may cooperate with one another in setting prices; can produce results similar to a monopoly

Examples: Four companies control 89% of U.S. wireless market (AT&T, Verizon, Sprint, T-Mobile)

Usually defined by having xx% of market share

What’s a cartel?

What’s a cartel? Cartel: an international syndicate,

combine or trust formed specifically to regulate prices and output in some field of business

What’s a cartel? Cartel: an international syndicate,

combine or trust formed specifically to regulate prices and output in some field of business

OPEC (Organization of Petroleum Exporting Countries) is the classic cartel

What’s a cartel? Cartel: an international syndicate,

combine or trust formed specifically to regulate prices and output in some field of business

OPEC (Organization of Petroleum Exporting Countries) is the classic cartel

But even OPEC cannot control oil prices... consumers respond to higher prices, OPEC members cheat, alternate fuels, technology such as Prius

Anti-Trust Laws

Anti-Trust Laws

Some huge biz organizations were known as trusts, hence “anti-trust” laws passed by governments

Anti-Trust Laws

Some huge biz organizations were known as trusts, hence “anti-trust” laws passed by governments

Intent was to prevent monopolies and cartels from artificially raising prices

Anti-Trust Laws

Some huge biz organizations were known as trusts, hence “anti-trust” laws passed by governments

Intent was to prevent monopolies and cartels from artificially raising prices

Sherman Anti-Trust Act of 1890:

Sherman Anti-Trust Sherman: Not specifically intended to

prevent the dominance of an industry by a specific company. Any company that "got the whole business because nobody could do it as well as he could" would not be in violation of the act.

Sherman Anti-Trust

The law attempts to prevent the artificial raising of prices by restriction of trade or supply. In other words, innocent monopoly is perfectly legal, but acts by a monopolist to artificially preserve his status, or nefarious dealings to create a monopoly, are not.

Anti-Trust Laws, Take 2

However, we always look at ________ not intent

Anti-Trust Laws, Take 2

However, we always look at ________ not intent

And as you read……….. Yep, business soon learned to lobby government to use anti-trust laws to restrict competition

Anti-Trust Laws, Take 2

However, we always look at ________ not intent

And as you read……….. Yep, business soon learned to lobby government to use anti-trust laws to restrict competition

Some of the most famous anti-trust cases involved business that charged lower prices

More Anti-Trust Stuff

Morton Salt, Borden milk, Microsoft giving away Internet Explorer

More Anti-Trust Stuff

Morton Salt, Borden milk, Microsoft giving away Internet Explorer

Problem is the issue of how much of the market a company “controls”

More Anti-Trust Stuff

Morton Salt, Borden milk, Microsoft giving away Internet Explorer

Problem is the issue of how much of the market a company “controls”

In actuality, in a free market, competition will dictate your market share, if you’re really efficient it can get quite large... iPod, Google

Anti-Trust redux Consumers win when companies like

Wal*Mart lower prices, but benefits gets lost in the confusion

Anti-Trust redux Consumers win when companies like

Wal*Mart lower prices, but benefits gets lost in the confusion

Also forgotten is that alternate products can substitute when prices get too high… i.e., limits on newspaper ownership in one city are absurd with internet, news radio, etc.

Anti-Trust redux Consumers win when companies like

Wal*Mart lower prices, but benefits gets lost in the confusion

Also forgotten is that alternate products can substitute when prices get too high… i.e., limits on newspaper ownership in one city are absurd with internet, news radio, etc.

Key to monopoly is not market share, but the ability to keep others out

Regulatory Commissions

Regulatory Commissions

ICC, Public Service Commissions, SEC, FDA, EPA, FEC, FCC, etc. etc. etc. etc.

Regulatory Commissions

ICC, Public Service Commissions, SEC, FDA, EPA, FEC, FCC, etc. etc. etc. etc.

Functions are nearly impossible to do properly

Regulatory Commissions

ICC, Public Service Commissions, SEC, FDA, EPA, FEC, FCC, etc. etc. etc. etc.

Functions are nearly impossible to do properly

Most onerous with power companies

Regulatory Commissions

Only the actual functioning of the market could reveal what the price should be, with less efficient firms being eliminated by bankruptcy

Regulatory Commissions

Only the actual functioning of the market could reveal what the price should be, with less efficient firms being eliminated by bankruptcy

Cost of electricity can vary tremendously… time, fuel sources

Regulations under Obama Tremendous increase in number of

agencies and regulations under Obama and Democrat Congress

Regulations under Obama Tremendous increase in number of

agencies and regulations under Obama and Democrat Congress

New ‘super’ consumer agency is regulating ATM fees, checking costs, profit margins... turning banks into regulated utilities

Regulations under Obama Tremendous increase in number of

agencies and regulations under Obama and Democrat Congress

New ‘super’ consumer agency is regulating ATM fees, checking costs, profit margins... turning banks into regulated utilities

EPA is proposing regs that will cost trillions and ship millions of jobs overseas

Regulations under Obama The Center for Health Transformation,

founded by Newt Gingrich, recently estimated that the new health-care law created as many as 159 new offices, agencies and programs. Republican staffers on the Joint Economic Committee determined that there were new 47 bureaucratic entities.

Regulatory Commissions

In practice, regulated business use the commissions to keep out competitors, thus preventing lower prices... ICC protecting trains from truckers

Regulatory Commissions

In practice, regulated business use the commissions to keep out competitors, thus preventing lower prices... ICC protecting trains from truckers

Remember: cheaper to ship blue jeans from Taiwan to Dallas, than to ship them from El Paso to Dallas

Assignment for Nov. 9

Read and study Chapter 8 of Basic Economics: “An Overview”

Review chapters 5-8 There will be a Test on Chapters 5-

8!!!!!!!!!

Assignment for Nov. 9

Write a 350-word paper. The Federal Communications Commission is considering regulating the Internet for the first time via an effort known as “net neutrality.” Based on Dr. Sowell’s teachings: do you think this is a good idea and what will like occur should “net neutrality” be adopted?

Remember: no class next week