Economics Project1 (1)

U.S. Monopolies:A Glimpse Inside

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MONOPOLY

A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity. (This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly which consists of a few entities dominating an industry). Monopolies are thus characterized by a lack of economic competition to produce the good (or service) and a lack of viable substitute goods. In economics, a monopoly is a single seller. In law, a monopoly is business entity that has significant market power, that is, the power, to charge high prices. Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry (or market).

A monopoly is distinguished from a monopsony, in which there is only one buyer of a product or service; a monopoly may also have monopsony control of a sector of a market. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations such that one or a few of the entities have market power and therefore interact with their customers (monopoly), suppliers (monopsony) and the other companies (oligopoly) in a game theoretic manner – meaning that expectations about their behavior affects other players' choice of strategy and vice versa.

When not coerced legally to do otherwise, monopolies typically maximize their profit by producing fewer goods and selling them at higher prices than would be the case for perfect competition. Sometimes governments decide legally that a given company is a monopoly that doesn't serve the best interests of the market and/or consumers. Governments may force such companies to divide into smaller independent corporations as was the case of United States v. AT&T, or alter its behavior as was the case of United States v. Microsoft, to protect consumers.

Monopolies can be established by a government, form naturally, or form by mergers. A monopoly is said to be coercive when the monopoly actively prohibits competitors by using practices (such as underselling) which derive from its market or political influence. There is often debate of whether market restrictions are in the best long-term interest of present and future consumers.

In many jurisdictions, competition laws restrict monopolies. Holding a dominant position or a monopoly of a market is not illegal in itself, however certain categories of behavior can, when a business is dominant, be considered abusive and therefore incur legal sanctions. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyright, and trademarks are sometimes used as examples of government granted monopolies, but they rarely provide market power. The government may also reserve the venture for itself, thus forming a government monopoly.

Characteristics: Profit Maximiser : Maximizes profits.

Price Maker : Decides the price of the good or product to be sold.

High Barriers to Entry : Other sellers are unable to enter the market of the monopoly.

Single seller : In a monopoly there is one seller of the good which produces all the output. Therefore, the whole market is being served by a single company, and for practical purposes, the company is the same as the industry.

Price Discrimination : A monopolist can change the price and quality of the product. He sells more quantities charging less price for the product in a very elastic market and sells less quantities charging high price in a less elastic market.

Sources of monopoly powerMonopolies derive their market power from barriers to entry – circumstances that prevent or greatly impede a potential competitor's ability to compete in a market. There are three major types of barriers to entry- economic, legal and deliberate.

1. Economic barriers : Economic barriers include economies of scale, capital requirements, cost advantages and technological superiority.

Economies of scale : Monopolies are characterized by decreasing costs for a relatively large range of production. Decreasing costs coupled with large initial costs give monopolies an advantage over would-be competitors. Monopolies are often in a position to reduce prices below a new entrant's operating costs and thereby prevent them from continuing to compete. Furthermore, the size of the industry relative to the minimum efficient scale may limit the number of companies that can effectively compete within the industry. If for example the industry is large enough to support one company of minimum efficient scale then other companies entering the industry will operate at a size that is less than MES, meaning that these companies cannot produce at an average cost that is competitive with the dominant company. Finally, if long-term average cost is constantly decreasing, the least cost method to provide a good or service is by a single company.

Capital requirements : Production processes that require large investments of capital, or large research and development costs or substantial sunk costs limit the number of companies in an industry. Large fixed costs also make it difficult for a small company to enter an industry and expand.

Technological superiority : A monopoly may be better able to acquire, integrate and use the best possible technology in producing its goods while entrants do not have the size or finances to use the best available technology. One large company can sometimes produce goods cheaper than several small companies.

No substitute goods : A monopoly sells a good for which there is no close substitute. The absence of substitutes makes the demand for the good relatively inelastic enabling monopolies to extract positive profits.

Control of natural resources : A prime source of monopoly power is the control of resources that are critical to the production of a final good.

2. Network externalities : The use of a product by a person can affect the value of that product to other people. This is the network effect. There is a direct relationship between the proportion of people using a product and the demand for that product. In other words the more people who are using a product the greater the probability of any individual starting to use the product. This effect accounts fashion trends. It also can play a crucial role in the development or acquisition of market power. The

most famous current example is the market dominance of the Microsoft operating system in personal computers.

3. Legal barriers : Legal rights can provide opportunity to monopolise the market of a good. Intellectual property rights, including patents and copyrights, give a monopolist exclusive control of the production and selling of certain goods. Property rights may give a company exclusive control of the materials necessary to produce a good.

4. Deliberate actions : A company wanting to monopolise a market may engage in various types of deliberate action to exclude competitors or eliminate competition. Such actions include collusion, lobbying governmental authorities, and “force”.

In addition to barriers to entry and competition, barriers to exit may be a source of market power. Barriers to exit are market conditions that make it difficult or expensive for a company to end its involvement with a market. Great liquidation costs are a primary barrier for exiting. Market exit and shutdown are separate events. The decision whether to shut down or operate is not affected by exit barriers. A company will shut down if price falls below minimum average variable costs.

Hypothetical Demand and Marginal Revenue Curves Faced by a Monopolist

Since Demand is negatively sloped, MR is lower than Price. The MR values are plotted at the midpoint of each quantity interval. The MR curve starts at the same point as the demand curve, and at every point it bisects the distance between demand and vertical axis. MR is positive when demand is elastic. MR=0 when demand is unitary elastic and TR is at the maximum. MR is negative when demand is inelastic.

Short Run Equilibrium Price and Output Under Monopoly:

Short Run Equilibrium of the Monopoly Firm: In the short period, the monopolist behaves like any other firm. A monopolist will maximize profit or minimize losses by producing that output for which marginal cost (MC) equals marginal revenue (MR). Whether a profit or loss is made or not depends upon the relation between price and average total cost (ATC). It may be made clear here that a monopolist does not necessarily make profit. He may earn supernormal profit or normal profit or even produce at a loss in the short run. Conditions for the Equilibrium of a Monopoly Firm:           There are two basic conditions for the equilibrium of the monopoly firm.

 1. First Order Condition: MC = MR.

    2. Second Order Condition: MC curve cuts MR curve from below.

 Explanation: (a) Short Run Monopoly Equilibrium With Positive Profit:

In the short period, if the demand for the product is high, a monopolist increases the price and the quantity of output. He can increase the, output by hiring more labor, using more raw materials, increasing working hours etc. However, he cannot change his fixed plant and equipment. In case, the demand for the product falls, he then decreases the use of variable inputs, (like labor, material etc.). As regards the price, the monopolist is a price maker. There is a greater tendency for the monopolist to have a price which earns positive profits. This can only be possible if the price (AR) is higher than average total cost (ATC). The short run profit earned by the monopolist is now explained with the help of the diagram below. Diagram/Curve: 

       In this diagram, the monopoly firm is in equilibrium at point K where SMC = MR. The short run marginal cost (SMC) curve cuts MR from below. At point K both the equilibrium conditions are fulfilled. As a result, therefore, OE is monopoly price and OB, the monopoly output. At the monopoly output OB, the average total cost OF = BN. The profit per unit is FE.  The short run monopoly profit is ETNF, It is represented by the area of shaded rectangle.     At a lesser output than OB (say at point P), MR > SMC. Therefore, increased output up to B adds more to total receipts than to total costs. If the output is increased beyond OB, MR < SMC. Hence, the increased outputs beyond OB add more to total cost than to total receipts. This causes profits to decrease. So the best level of output for the monopolist firm is that where SMC curve cuts the MC curve from below. 

(b) Short Run Equilibrium With Normal Profit Under Monopoly: There is a false impression regarding the powers of a monopolist. It is said that the monopolistic entrepreneur always earns profits. The fact, however, is that there is no guarantee for the monopolist to earn profit in the short run. If a monopolist firm produces a new commodity and attempts to change the taste pattern of the consumers through advertising campaigns etc., then the firm may operate at normal profit or even produce at a loss minimizing price in the short run (Covering variable cost only). The normal profit short run equilibrium of the monopoly firm is explained, in brief, with the help of the diagrams.

In the figure above, a firm is in the short run equilibrium at point K, where SMC = MR. The price line is tangent to SAC at point C. The firm charges CB price per unit for units of output OB. The total revenue of the firm is equal to the area OPCB. The total cost of the firm is also equal to the area OPCB. The firm earns only normal profits and continues operating. 

(c) Short Run Equilibrium With Losses Under Monopoly:

A monopolist also accepts short run losses provided the variable costs of the firm are fully covered. The loss minimizing short run equilibrium analysis is presented graphically.

 In this figure (16.5), the best short run level of output is OB units which is given by the point L where MC = MR. A monopolist sells OB units of output at price CB. The total revenue of the firm is equal to OBCF. The total cost of producing OB units is OBHE. The monopoly firm suffers a net loss equal to the area FCHE. If the firm ceases production, it then has to bear to total fixed cost equal to GKHE. The firm in the short run prefers to operate and reduces its losses to FCHE only. In the long, if the loss continues, the firm shall have to close down.

Long Run Equilibrium Under Monopoly The monopolist creates barriers of entry for the new firms into the industry. The entry into the industry is blocked by having control over the raw materials needed for the production of goods or he may hold full rights to the production of a certain good (patent) or the market of the good may be limited. If new firms try to enter in the field, it lowers the price of the good to such an extent that it becomes unprofitable for new firms to continue production etc. When there is no threat of the entry of new firms into the industry, the monopoly firm makes long run adjustments in the scale of plant. In case, the demand for the product is limited, the monopolist can afford to produce output at sub optimum scale. If the market size is large and permits to expand output, then the monopolist would build an optimum scale of plant and would produce goods at the minimum cost per unit. However, the monopolist would not stay in the business, if he makes losses in the long period. The long run equilibrium of a monopoly firm is now explained with the help of the following diagram. 

Diagram/Curve:

 In the long run, all the factors of production including the size of the plant are variable. A monopoly firm will maximize profit at that level of output for which long run marginal cost (MC) is equal to marginal revenue (MR) and the LMC curve intersects the MR curve from below. In the figure, the monopoly firm is in equilibrium at point E where LMC = MR and LMC cuts MR curve from below. QP is the equilibrium price and OQ is the equilibrium output. At OQ level of output, the cost per unit is QH (LAC), whereas the price per unit of the good is QP. HP represents the per unit super normal profit. The total super normal profit is equal to KPHN. It may here be noted that at the equilibrium output OQ, the plant is not being fully utilized. The long run average cost (LAC) is not minimum at this level of output OQ. The firm will build an optimum scale of plant only if the demand for the product increases. 

Threat of Entry of New Firms: If there is a threat of entry of new firms into the market, the monopolist adopts price reduction strategy. He, instead of charging QP price per unit, lowers the price to BR. Since the per unit price BR is equal to the cost per unit at R, the monopoly firm is earning only normal profit in the long run. The reduction in price and so in profits is adopted to prevent the entry of new firms in the market. Summing up, if a monopoly firm is in a position to maintain its monopoly status, it can earn super normal profit in the long period. However, if there is an effective threat of the entry of potential firms in, the industry, then the firm can earn just normal profit by reducing the price. The reduction in price depends on how strong is the threat of potential entry into the industry. 

The Economic And Social Costs Of Monopoly

The main case against a monopoly is that these businesses can earn higher profits at the expense of allocative efficiency. The monopolist will seek to extract a price from consumers that is above the cost of resources used in making the product. And higher prices mean that consumers’ needs and wants are not being satisfied, as the product is being under-consumed. Under conditions of monopoly, consumer sovereignty has been partially replaced by producer sovereignty.

In the diagrams above we contrast a market where demand is price inelastic (i.e. PE d <1) with one where demand is more sensitive to price changes (i.e. PEd>1). The former is associated with a monopoly where consumers have few close substitutes to choose from. When demand is inelastic, the level of consumer surplus is high, raising the possibility that the monopolist can reduce output and raise price above cost thereby operating with a higher profit margin (measured as the difference between price and average cost per unit).

One way of showing the loss of economic welfare that comes from monopolistic firms exploiting their power is to use supply and demand analysis and the concepts of consumer and producer surplus. If a monopoly reduces output from the equilibrium at Q1 to Q2 then it can sell this at a higher price P2. This results in a transfer of consumer surplus into extra producer surplus. But because price is now about the cost of supplying extra units, there is a loss of allocative efficiency. This is shown in the diagram by the shaded area which is not transferred to the producer, merely lost completely because output is lower than it would otherwise be in a competitive market.

Higher costs – loss of productive efficiencyAnother possible cost of monopoly power is that businesses may allow the lack of real competition to cause a rise in production costs and a loss of productive efficiency. When competition is tough, businesses must keep firm control of their costs because otherwise, they risk losing market share. Some economists go further and say that monopolists may be even less efficient because, if they believe that they have a protected market, they may be less inclined to spend money on research and improved management. These inefficiencies can lead to a waste of scarce resources.

Advantages and Disadvantages of Monopoly Market

Advantages1. Stability of prices- in a monopoly market the prices are most of the times stable. This happens

because there is only one firm involved in the market that sets the prices if and when it feels like. In other types of market structures prices are not stable and tend to be elastic as a result of the competition that exists but this isn’t the case in a monopoly market as there is little or no competition at all.

2. Source of revenue for the government- the government gets revenue in form of taxation from monopoly firms.

3. Massive profits- due to the absence of competitors which leads to high number of sales monopoly firms tend to receive super profits from their operations. The massive profits realized may be used in such things as launching other products, carrying out research and development among many other things that may be beneficial to the firm.

4. Monopoly firms offer some services effectively and efficiently.

Disadvantages1. Exploitation of consumers- a monopoly market is best known for consumer exploitation. There are

indeed no competing products and as a result the consumer gets a raw deal in terms of quantity, quality and pricing. The firm may find it easy to produce inferior or substandard goods if it wishes because t the end of the day they know very well that the items will be purchased as there are no competing products for the already available market.

2. Dissatisfied consumers- consumers get a raw deal from a monopoly market because quality will be compromised. Therefore it is not a wonder to see very dissatisfied consumers who often complain about the firm’s products

3. Higher prices- no competition in the market means absence of such things as price wars that may have benefited the consumer and as a result of this monopoly firms tend to charge higher prices on goods and services hence inconveniencing the buyer.

4. Price discrimination- monopoly firms are also sometimes known for practicing price discrimination where they charge different prices on the same product for different consumers.

5. Inferior goods and services- competition is minimal or totally absent and as such the monopoly firm may willingly produce inferior goods and services because after all they know the goods will not fail to sell.

Case Study

Monopoly is the extreme case in capitalism. It is characterized by a lack of competition, which can mean higher prices and inferior products. However, the great economic power that monopolies hold has also had positive consequences for the U.S. Read on to take a look at some of the most notorious monopolies, their effects on the economy and the government's response to their rise to power.

Sherman's Hammer

Responding to a large public outcry to check the price fixing abuses of these monopolies, the Sherman Antitrust Act was passed in 1890. This act banned trusts and monopolistic combinations that lessened or otherwise hampered interstate and international trade. The act acted like a hammer for the government, giving it the power to shatter big companies into smaller pieces to suit its own needs.

Despite this act's passage in 1890, the next 50 years saw the formation of many domestic monopolies. During this same period, the antitrust legislation was used to attack several monopolies with varying levels of success. The general trend with the use of the act seemed to have been to make a distinction between good monopolies and bad monopolies as seen by the government.

Case Study 1: International Harvester and American Tobacco

For example, International Harvester produced cheap agricultural equipment for a largely agrarian nation, and was thus considered untouchable lest the voters rebel. American Tobacco, on the other hand, was suspected of charging more than a fair price for cigarettes - then touted as the cure for everything from asthma to menstrual cramps - and consequently called down the legislator's wrath in 1907 and was broken up in 1911.

The Benefits of a Monopoly

Standard Oil

Standard Oil, predominant American integrated oil producing, transporting, refining, and marketing company. Established in 1870 as a corporation in Ohio, it was the largest oil refiner in the world and operated as a major company trust and was one of the world's first and largest multinational corporations until it was broken up by the United States Supreme Court in 1911.

John D. Rockefeller was a founder, chairman and major shareholder. As it grew exponentially and engaged in business strategies, tactics and practices that were lawful but drove many smaller businesses under, Standard Oil became widely criticized in the public eye, even as it made Rockefeller the richest man in modern history. Other notable Standard Oil principals include Henry Flagler, developer of Florida's Florida East Coast Railway and resort cities, and Henry H. Rogers, who built the Virginian Railway (VGN), a well-engineered highly efficient line dedicated to shipping southern West Virginia's bituminous coal to port at Hampton Roads.

Case Study 2: Standard Oil

The oil industry was prone to a natural monopoly because of the rarity of the deposits. Rockefeller and his partners took advantage of both the rarity of oil and the revenue produced from it to set up a monopoly without the help of the banks. The business practices and questionable tactics that Rockefeller used to create Standard Oil would make the Enron crowd blush, but the finished product was not near as damaging to the economy or the environment as the industry was before Rockefeller monopolized it.

Back when there were a lot of oil companies competing to make the most of their find, companies would often pump waste products into rivers or straight out on the ground rather than going to the cost of researching proper disposal. They also cut costs by using shoddy pipelines that were prone to leakage. By the time Standard Oil had cornered 90% of oil production and distribution in the United States, it had learned how to make money off of even its industrial waste - Vaseline being but one of the new products launched.

The benefits of having a monopoly like Standard Oil in the country was only realized after it had built a nationwide infrastructure that no longer depended on trains and their notoriously fluctuating costs, a leap that would help reduce costs and the overall price of petroleum products after the company was dismantled. The size of Standard Oil allowed it to undertake projects that disparate companies could never agree on and, in that sense; it was as beneficial as state-regulated utilities for developing the U.S. into an industrial nation.

Despite the eventual break of up of Standard Oil, the government realized that a monopoly could build up a reliable infrastructure and deliver low-cost service to a broader base of consumers than competing firms - a lesson that influenced its decision to allow the AT&T monopoly to continue until 1982. The profits of Standard Oil and the generous dividends also encouraged investors, and thereby the market, to invest in monopolistic firms, providing them with the funds to grow larger.

The Limitations of a Monopoly

U.S. Steel

The United States Steel Corporation (NYSE: X), more commonly known as U.S. Steel, is an integrated steel producer with major production operations in the United States, Canada,

and Central Europe. The company is the world's tenth largest steel producer ranked by sales (see list of steel producers). It was renamed USX Corporation in 1991 and back to United States Steel Corporation in 2001.It is still the largest domestically owned integrated steel producer in the United States, although it produces only slightly more steel than it did in 1902 when Andrew Carnegie created the largest and most profitable industrial enterprise outside of the Scottish Empire. Andrew Carnegie (November 25, 1835 – August 11, 1919) was a Scottish-American industrialist who led the enormous expansion of the American steel industry in the late 19th century. He was also one of the most important philanthropists of his era.

Case Study 3: U.S. Steel

Andrew Carnegie, a Scot of the penny-pinching Braveheart variety, went a long way in creating a monopoly in the steel industry when J.P. Morgan bought his steel company and melded it into U.S. Steel. A monstrous corporation approaching the size of Standard Oil, U.S. Steel actually did very little with the resources in its grasp - which can point to the limitations to having only one owner with a single vision. The corporation survived its court battle with the Sherman Act and went on to lobby the government for protective tariffs to help it compete internationally, but it grew very little.

U.S. Steel controlled about 70% of steel production, but competing firms were hungrier, more innovative and more efficient with their 30% of the market. U.S. Steel stagnated in innovation as smaller companies ate more and more of its market share.

Clayton Improves Sherman's Aim

Following the breakup of sugar, tobacco, oil and meat-packing monopolies, big business didn't know where to turn because there were no clear guidelines about what constituted monopolistic business practices. The founders and management of so-called "bad monopolies" were also enraged by the hands-off approach taken with International Harvester. They justly argued that the Sherman Act didn't make allowance for a specific business or product, and that its execution should be universal rather than operating like lightning bolts thrown down upon select businesses by the wrathful gods in government.

In response, the Clayton Act was introduced in 1914. It set some specific examples of practices that would attract Sherman's hammer. Among these were interlocking directorships, tie-in sales, and certain mergers and acquisitions if they substantially lessened the competition in a market. This was followed by a succession of other acts demanding that businesses consult the government before any large mergers or acquisitions took place.

Although these innovations did give business a slightly clearer picture of what not to do, it did little to curb the randomness of antitrust action. Major League Baseball even found itself under investigation in the 1920s, but escaped by claiming to be a sport rather than a business and thus not classified as interstate commerce.

End of a Monopoly Era?

The last great American monopolies were created a century apart and one lasted over a century, whereas the other was very short-lived or still continuing depending where you sit.

Case Study 4: AT&T and Microsoft

AT& T

AT&T Inc. (sometimes stylized as at&t; NYSE: T, for "telephone") is an American multinational telecommunications corporation headquartered in Whitacre Tower, Dallas, Texas, United States. It is the second largest provider of mobile telephony and fixed telephony in the United States, and is also a provider of broadband subscription television services. As of 2010, AT&T is the 7th largest company in the United States by total revenue, as well as the 4th largest non-oil company in the US. It is the 3rd largest company in Texas by total revenue and the largest non-oil company in Texas. It is also the largest company headquartered in Dallas. In 2011, Forbes listed AT&T as the 14th largest company in the world by market value[5] and the 9th largest non-oil

company in the world by market value. It is the 20th largest mobile telecom operator in the world with over 100.7 million mobile customers.

Microsoft

Microsoft Corporation (NASDAQ: MSFT) is an American multinational corporation headquartered in Redmond, Washington, United States that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions. Established on April 4, 1975 to develop and sell BASIC interpreters for the Altair 8800, Microsoft rose to dominate the home computer operating system market with MS-DOS in the mid-1980s, followed by the Microsoft Windows line of operating systems.

AT&T was a government-supported monopoly - a public utility - that would have to be considered a coercive monopoly. Like Standard Oil, the AT&T monopoly made the industry more efficient and wasn't guilty of fixing prices, but rather the potential to fix prices. The breakup of AT&T by Reagan in the 1980s gave birth to the "baby bells". Since that time, many of the baby bells have begun to merge and increase in size in order to provide better service to a wider area. Very likely, the breakup of AT&T caused a sharp reduction in service quality for many customers and, in some cases, higher prices, but the settling period has elapsed and the baby bells are growing to find a natural balance in the market without calling down Sherman's hammer again.

Microsoft, on the other hand, was never actually broken up even though it lost its case. The case against it was centered on whether Microsoft was abusing what was essentially a non-coercive monopoly. Microsoft has been challenged by many companies, including Google, over its operating systems' continuing hostility to competitors' software.

Just as U.S. Steel couldn't dominate the market indefinitely because of innovative domestic and international competition, the same is true for Microsoft. A non-coercive monopoly only exists as long as brand loyalty and consumer apathy keep people from searching for a better alternative. Even now, the Microsoft monopoly is looking chipped at the edges as rival operating systems are gaining ground and rival software, particularly open source software, is threatening the bundle business model upon which Microsoft was built. Because of this, the antitrust case seems premature and/or redundant.

Antitrust Legislation

In the United States, toward the last part of the nineteenth century, widespread business combinations known as trust agreements existed. These agreements usually involved two or more companies that combined with the purpose of raising prices and lowering output, giving the trustees the power to control competition and maximize profits at the public's expense. These trust agreements would result in a monopoly. To combat this sort of business behavior, Congress passed antitrust legislation.In 1890 Congress passed the Sherman Antitrust Act, which forbade all combinations or conspiracies in restraint of trade. The act contained two substantive provisions. Section 1 declared illegal contracts and conspiracies in restraint of trade, and Section 2 prohibited monopolization and attempts to monopolize. When an injured party or the government filed suits, the courts could order the guilty firms to stop their illegal behavior or the firms could be dissolved. The Sherman Antitrust Act pertained only to trade within the states, and monopolies still flourished as companies found ways around the law.In 1914 Congress passed the Clayton Act as an amendment to the Sherman Act. The Clayton Act made certain practices illegal when their effect

A cartoon illustrating antitrust legislation attacking monopolies.was to lessen competition or to create a monopoly. The main provisions of this act in cluded (1) forbidding discrimination in price, services, or facilities between customers; (2) determining that antitrust laws were not applicable to labor organizations; (3) prohibiting requirements that customers buy additional items in order to obtain products desired; and (4) making it illegal for one corporation to acquire the stock of another with intention of creating a monopoly. Because loopholes were also present in the Clayton Act, the Federal Trade Commission (FTC) was established to enforce the antitrust legislation.Passed in 1914, the Federal Trade Commission Act provided that "unfair methods of competition in or affecting commerce are hereby declared unlawful."

The FTC consists of five members appointed by the president and has the power to investigate persons, partnerships, or corporations in relation to antitrust acts. Examples of unlawful trade practices include misbranding goods quality, origin, or durability; using false advertising; mislabeling to mislead consumer about product size; and advertising or selling rebuilt goods as new. The act also gave the FTC the power to institute court proceedings against alleged violators and provided the penalties if found guilty.The Robinson-Patman Act of 1936 strengthened the price discrimination provisions of the Clayton Act. One amendment involved the discrimination in rebates, discounts, or advertising service charges; underselling and penalties. Another provided for the exemption of non-profit institutions from price-discrimination provisions. The main purpose of this act was to justify the differences in product costs between customers and clarify the Robinson-Patman Act.The Celler-Kefauver Antimerger Act, passed in 1950, extended the Clayton Act's injunction against mergers. Since the purpose of this act was to forbid mergers that prevented competition, corporations that were major competitors were prohibited from merging in any manner. This amendment extended the FTC's jurisdiction to all corporations. This act, however, was not intended to stop the merger of two smaller companies or the sale of one in a failing condition. Due to court decisions that had weakened the Clayton Act, the Celler-Kefauver Antimerger Act was necessary to restrict mergers.Although antitrust laws have contributed enormously to improving the degree of competition in our system, they have not been a complete success. A sizable number of citizens would like to see these laws broadened to cover professional baseball teams, labor unions, and professional organizations. Without the antitrust legislation that now exists, however, our economy would be worse off in the end.

Conclusion

Globalization and the maturity of the world economy have prompted calls for the retirement of antitrust laws. In the early 1900s, people suggesting that the government didn't need to have a hammer to smash big business with would've been eyed suspiciously as a member of a lunatic fringe or one of Wall Street's big money cartel members. Over the years, these calls have been coming from people like economist Milton Friedman, former Federal Reserve Chairman, Alan Greenspan and everyday consumers. If the history of government and business is any indication, the government is more likely to increase the range and power of antitrust laws rather than relinquish such a useful weapon.