The Oz-onomics Podcast

Control and Regulation

March 1, 2020

Monopolies are corporations who dominate over a particular industry and are the primary supplier of a particular commodity. When they are left without government intervention, the price increases above the competitive equilibrium price which is detrimental to consumers. Anti-trust laws were put into place in order to regulate companies with too much influence over the market. This is beneficial to consumers who rely on competition to lower prices and make goods more affordable for the public. The basis of these laws is the Sherman Act, Federal Trade Commission Act, and the Clayton Act which were all established within a 30-year period approximately a century ago. They are still in effect today with slight modifications being made over time as the government adapted to changing societal conditions. Regulations imposed on corporations raise the cost of their products because of the resources being allocated to meet various government standards. These regulations are intended to serve the well-being of the public. Although this has a direct impact on consumers, government intervention has proven effective in mitigating the abuse of power by companies with a lot of influence on commerce.

Podcast by Malcolm Wettering

Transcript

[MUSIC]

Kate: Hey everyone. Welcome to Oz-onomics, a podcast created for and by students in introductory economics classes at SUNY Oswego.

GABRIELLA: In this series, we'll have discussions about various economic principles and how they apply to our day to day lives.

KATE: Are you ready?

GABRIELLA: Let's go.

[MUSIC]

My name is Malcolm Wettering and I am going to discuss anti-trust laws, monopolies, their connection to one another, and the role of the government in maintaining a balance in the market. A monopoly is an enterprise which possesses exclusive control over the supply of a commodity. This means that a company has the ability to pigeonhole consumers into purchasing a good or service above the competitive equilibrium price because there are no competitors to force them to lower the cost. An anti-trust law is a form of federal and state legislature which promotes fair competition for the benefits of consumers by regulating conduct. This was first developed in the late 1800’s to combat monopolies such as the steel, oil, and banking industries who became prosperous through policies such as lowered working conditions for employees. The role of the government in establishing fair trade began with the Sherman Act in 1890 which was meant to preserve free trade and unfettered competition. This was followed by the Federal Trade Commission Act and the Clayton Act in 1914. These became the core of anti-trust laws which are still in effect today. The penalties from violating the terms of the Sherman Act can be tough on both corporations and individuals, with monetary fines of 10 million and 350,000, respectively. As well as up to 3 years in prison if convicted but these penalties vary for each case. Any violations of the Sherman Act also violate the Federal Trade Commission Act. The Clayton Act is specifically designed to prohibit mergers that could lower competition and interlocking directorates. This occurs when members of a corporate board of directors serve on multiple boards of corporations. It is practical because this allows people in positions of power to make decisions for competing companies, which would typically be used to increase profits in some form. There is interdependence between monopolies and anti-trust laws because one cannot exist without the other. Laws were put into place that would establish a balance between the producer and consumer and promote a healthy relationship. Some monopolies get their power through vertical integration, which is when they control the entire chain of supply, from the production aspect to the retail as well. This is detrimental to the businesses of other competitors who do not have control of the supply chain and lose a portion of their profits by having to go through the supply chain. Some other characteristics of monopolies are price fixing, a decline in product quality, and loss of innovation. Innovation is imperative to progression and advances over time, and this is lost when there is no competition to push producers to come up with new ideas to grab the attention of consumers. A decline in product quality most likely occurs because if consumers have no alternative to purchase, they are going to unwillingly settle for what is provided. Regulations impact the market by increasing consumer prices since funds need to be designated to meeting certain standards in various aspects of the company providing the good. This could impact consumers who are poor because energy and food is what their limited budgets prioritize, and this is also one of the most heavily regulated aspects of the market. Consumers are also influenced by regulations through the quality of the goods they are going to purchase, the information they receive about a product, and confidence in the product supply. Some corporations today that resemble monopolies and concentrated industries include Waste Management, Google, and Monsanto. There are legal discrepancies which still allow these companies to continue producing products at a higher price due to a lack of alternatives. For example, utility monopolies are allowed to exist because their prices are regulated by a government body. Competition in these areas would lead to confusion and highly undesirable social outcomes. Such as license issuance for various groups where quality control is of upmost importance. Monsanto is a prime example of a company pushing a lack of alternatives because they have taken over the seed industry. Their products use all GMO seed choices which is leading to a loss of renewable agriculture across the country. Google is a concentrated industry which remains a top used search engine, with about 90% of online searches resulting from their website. They dominate over their competitors and make it difficult for a company to start up in their market. When left unchecked, it is natural for corporations to continuously attempt to maximize their profit. However, it is often at the expense of consumers. A deadweight loss is also created by monopolistic competition, which is the allocative inefficiency of utility that is lost. A possible loophole that companies would try to exploit include purchasing a foreign company which holds less than 70 million in United States assets but may be worth far more. This occurred when Google purchased Waze, a competitor for mapping software, for over 1 billion dollars. Another example would be carried interest, which allows corporations to pay lower taxes on their income. Regulation of companies is a necessary requirement to ensure a mutualistic relationship between producers and consumers. Government intervention has proven over the past century to be beneficial compared to a laissez-faire approach, which would leave the public paying for overpriced goods and services. Anti-trust laws have been in place for just over 100 years, and the same principles are in place today. This is because government control of the market is an ideal way for a third party aside from producers and consumers to be regulated with oversight.

[MUSIC]

MICHAEL: There you have a folks on another edition of Oz-onomics, where economics becomes easier for Oswego students to understand where you get your money that you pay for your tuition worth. If you feel like being ahead of the curve, grab a seat, grab your phone, shift your fingers left and right. And download Oz-onomics on the podcast app. See you later.

The introduction to this podcast was provided by Kate Soanes and Gabriella Schaff. Michael Kolawale provided the outro. Music by Lobo Loco.

Show Notes

The following describes the purchase of Waze by Google https://www.gpsworld.com/googles-1-1-billion-purchase-of-waze-under-ftc-scrutiny/ The following describes the seed control strategies of Monsanto https://www.planetnatural.com/seed-control/ The following shows that google is responsible for 90% of online searches https://internethealthreport.org/2018/90-of-the-world-uses-google-search/ The following is where I received information regarding anti-trust laws https://www.justice.gov/atr/antitrust-laws-and-you This is where I got the information for fines and jailtime involving violations of the Sherman Act https://www.legalmatch.com/law-library/article/penalties-for-violating-antitrust-laws.html

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