Monopoly

A

Public Utilities

Pure monopolies—only a single firm in an industry—are rare in the U.S. economy, except among the public utilities. These industries produce goods and provide services vital to the public well-being, including such essentials as water, power, transport, and communications. Although such monopolies often seem to be the most effective way to supply vital public services, they must be regulated when privately owned or else be owned and operated by a public body.

Within the U.S., the pattern varies widely. Aside from the U.S. Postal Service and some ventures into power production (such as the Tennessee Valley Authority), little public ownership occurs at the federal level. At the municipal level, however, public ownership of water-supply systems, electrical power facilities, and transportation companies is commonplace. In most other nations, including those of Western Europe, public utilities are nearly always nationally owned.

B

Trusts

American history is replete with attempts by producers either to organize or to engage in practices that give them, in effect, monopoly power, although competition may still appear to exist. One of the earliest means used by producers to create an effective monopoly while retaining some semblance of competition was the trust. This is a device by which the real control of a company is transferred to an individual or small group by an exchange of shares of stock for trust certificates, which are issued by the individuals seeking control. The widespread abuse of this technique after the American Civil War eventually led to passage of the Sherman Antitrust Act (1890), a law designed to make illegal all trusts and other combinations that aimed to create monopolies in restraint of interstate commerce. A similar device is the holding company, which issues its own stock shares for sale to the public and “holds” or controls other companies by owning their shares. Such an arrangement is not necessarily illegal, unless created specifically to monopolize commerce in interstate trade.

C

Cartels

Today perhaps the best.known form of combination is the cartel because of the widespread attention given to the activities of the Organization of Petroleum Exporting Countries, or OPEC. A cartel is an organization formed by producers whose purpose is to allocate market shares, control production, and regulate prices. OPEC does all these things, but its most highly publicized acts have been to set the world price for petroleum. Cartels are illegal in the U.S.; most other countries, however—including the United Kingdom and the nations of Western Europe—have taken a more lenient view of cartels, allowing them to exist as long as their monopolistic practices do not become too outrageous.

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D

Mergers

Efforts to organize an industry in order to achieve practical monopoly control take different forms. Any combination of firms that reduces competition may be of a vertical, horizontal, or conglomerate character. A vertical combination involves merging firms at different stages of the production process into a single unit. Some of the oil companies, for example, own oil fields, refineries, transportation systems, and retail outlets. A horizontal combination involves bringing together firms in the same industry and at the same level in the production chain. Recently, conglomerate-type mergers have become prominent, with spectacular success in the 1960s but diminishing until 1984 and 1985, when the U.S. saw the greatest increase in corporate acquisitions in its history. A conglomerate merger combines firms from several unrelated industries into a single organization. All mergers and combinations have the potential for eliminating competition and creating monopoly. Mere potential, however, is not illegal in the U.S. under existing laws.

V

Government Regulation

The Sherman Antitrust Act was the key legislation in the U.S. effort to maintain by legal means a competitive economic environment. This act, which outlawed any “combination or conspiracy in restraint of trade,” has been supplemented by additional legislation, aimed at specific practices that lessen competition. In 1914 the U.S. Congress passed the Clayton Antitrust Act and also established the Federal Trade Commission. The Clayton Antitrust Act made illegal such practices as price discrimination and tying contracts, which forced a buyer or seller to deal exclusively with a particular firm. More recently, the Celler-Kefauver Act (1950) attempts to prevent mergers through the acquisition of the assets of competing firms if the effect is to substantially lessen competition.

Results of the U.S. effort to contain monopolies and maintain competition by legal means have been mixed. They have depended on the attitude of federal courts toward the meaning of monopoly power and on the vigor with which administrations in power are willing to enforce antitrust laws. Both have varied widely over time. In general, U.S. efforts have been more successful in preventing the emergence of outright monopolies in many parts of the economy than in creating highly competitive markets in most industries.

Outside the U.S.—and especially in the United Kingdom and Western Europe—no comparable effort has been made to use government power to enforce competition and prevent the emergence of monopoly in industry. Historically, these nations have taken a more tolerant view of the legality of monopolistic arrangements and practices. Recently, however, some antitrust statutes have been enacted in the European Union nations.