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Lecture04Cup - Regulatory Responses to “the Trust...

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Unformatted text preview: Regulatory Responses to “the Trust Problem” Cooperation, Competition, and the Struggle over Antitrust Legislation in the U.S., 1880-1914 (PART II) Combinations Combinations in Restraint of Trade in Restraint of Trade • Reference to horizontal combinations – Voluntary agreements among natural competitors to stop competing • Abide by common schedule of – Prices – Output levels – Market shares – Pools, cartels, trusts as examples of combinations in restraint of trade Different forms of Horizontal Different forms of Horizontal Combination Combination • Cartels and RR pools—the loosest form of combination – Both ownership and day-to-day management of individual property units are decentralized • Rational reorganization of productive enterprise difficult • Defection easy (esp. likely when business times get bad)-- Restrict Output-- Restrict Output-- Raise Prices-- Raise Prices-- Stabilize Prices-- Stabilize Prices STEEL CARTEL STEEL CARTEL-- Restrict Output-- Restrict Output-- Raise Prices-- Raise Prices-- Stabilize Prices-- Stabilize Prices STEEL CARTEL STEEL CARTEL Efficient Efficient Producers Producers Inefficient Inefficient Producers Producers-- Restrict Output-- Restrict Output-- Raise Prices-- Raise Prices-- Stabilize Prices-- Stabilize Prices STEEL CARTEL STEEL CARTEL Efficient Efficient Producers Producers Inefficient Inefficient Producers Producers Defect Defect Different forms of Horizontal Different forms of Horizontal Combination Combination • Trusts and Holding Companies—a tighter form of combination – Ownership remains decentralized, but day-to-day management transferred to central director • In exchange, owners received certificates entitling them to some share of aggregate profits.-- Restrict Output-- Restrict Output-- Raise Prices-- Raise Prices-- Stabilize Prices-- Stabilize Prices STEEL TRUST STEEL TRUST-- Restrict Output-- Restrict Output-- Raise Prices-- Raise Prices-- Stabilize Prices-- Stabilize Prices STEEL TRUST STEEL TRUST Efficient Efficient Producers Producers Inefficient Inefficient Producers Producers Different forms of Horizontal Different forms of Horizontal Combination Combination • Merger—Tightest form of combination – Ownership and management concentrated • In many instances, beyond the reach of the law to regulate. – Rights of property Combinations Combinations in Restraint of Trade in Restraint of Trade • Combinations in restraint of trade apply to looser forms of combination – Broadly tolerated by common law courts – Horizontal arrangements to restrict competition a part of a citizen’s right of voluntary association • Public welfare not compromised as long as – Potential competitors free to enter the market – Members of combine are free to exit – Not survival goods (“necessaries of life”) Horizontal Combination of Watch Makers Voluntary Arrangement to Restrain Voluntary Arrangement to Restrain Competition b/w Natural Competition b/w Natural Competitors Competitors Example Example : Price-Fixing Combination : Price-Fixing Combination Horizontal Combination...
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