Management Chapter 7 Outline

Management Chapter 7 Outline - Management: Chapter 7...

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Management: Chapter 7 Antitrust Law in the Environment of Business Introduction Competition o Competition is the lifeblood of capitalism o There is a tension between consumers, whose wealth and well-being depends on competition, and the capitalist firms who can be made richer without it. Smithian Model o Adam Smith believed that individual choice and self-organized firms could more accurately allocate resources o Many derive the phrase “greed is good” from his philosophy. o Through competition we ensure that consumers are not exploited and that firms work to squeeze as much wealth as possible from their resources. o Without competition, wealth may be easier to achieve by exploiting consumers o Smith believed that competition was the natural self-corrective force to exploitation in the market o Antitrust law has grown from the belief in protecting consumers whenever competition cannot do so by reversing anticompetitive outcomes and eliminating anticompetitive practices. Anticompetitive Practices o Deliberate actions by firms to outperform their competitors by harming their competitors rather than improving their own products. o Antitrust laws work to punish these actions. Origins of Antitrust Law Late 1800’s o Earliest antitrust law in the U.S. was in state common law o Craft v McConooughy – four Illinois grain merchants fixed the prices of grain to benefit themselves. The Illinois Supreme Court found the contract illegal because of its restraint of trade. Powerful Trusts Created o Trusts were originally where shareholders in separate companies would put their stock in the hands of trustees whose job was to jointly control and manage the corporations, hopefully making a profit and distributing it to the stockholders. o Trusts were being used to take over or destroy mostly small businesses. Standard Oil o Best-known trust was John D. Rockefellers Standard Oil Trust. o Basically controlled the flow of oil products from producer to consumer by 1870 o Controlled almost all oil refining and distribution in the U.S. and much of the world’s oil trade. o Dissolved by the supreme court in 1892 Railroad Trusts o Congress passed the Interstate Commerce Act in 1887 to regulate the railroads. o First step to protecting consumers and small businesses o Was too limited so congress passed the Sherman Act Major Antitrust Legislation
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Sherman Act outlawed trusts and empowered the federal government to break up an existing trust as it saw fit. Congress fixed the holes in Sherman by passing the Clayton Antitrust Act in 1914. Clayton outlawed anticompetitive practices While Sherman addressed outcomes (trusts or monopolies themselves), Clayton addressed activities that could lead to monopolies. Federal Trade Commission Act – established the federal trade commission and regulates unfair
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This note was uploaded on 10/02/2011 for the course MGMT 209 taught by Professor Swim during the Spring '08 term at Texas A&M.

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Management Chapter 7 Outline - Management: Chapter 7...

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