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Government Policies Toward Competition

Government Policies Toward Competition. Terms to know Interlocking directorate Antitrust legislation Merger Conglomerate Deregulation. Reading objectives. 1. What is the difference between interlocking directorates and mergers? 2. What is the purpose of federal regulatory agencies?

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Government Policies Toward Competition

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  1. Government Policies Toward Competition • Terms to know • Interlocking directorate • Antitrust legislation • Merger • Conglomerate • Deregulation

  2. Reading objectives • 1. What is the difference between interlocking directorates and mergers? • 2. What is the purpose of federal regulatory agencies? • 3. How has some regulation hurt consumers?

  3. What is the history behind the Antitrust Legislation? • Industrial expansion after the Civil War fueled the rise of big business.

  4. Who was the main reason for Antitrust legislation? • John D. Rockefeller and Standard Oil. What did Rockefeller do to his competitors? • Rockefeller drove competitors out of business and pressured customers not to deal with rival oil companies • He placed members of standard Oil’s board of directors onto the board of a competing corporation.

  5. Vocab • Interlocking directorate: A board of directors, the majority of whose members also serve as the board of directors of a competing corporation

  6. Sherman Antitrust Act • Started in 1890 due to public pressure against Rockefeller and his oil business • The law sought to protect trade and commerce against unlawful restraint and monopoly.

  7. Vocab • Antitrust legislation: federal and state laws passed to prevent new monopolies from forming and to break up those that already exist.

  8. Clayton Act • Started in 1914 to sharpen the Sherman Act • The Clayton Act prohibited or limited a number of very specific business practices that lessened competition substantially

  9. Vocab • Merger: a combined company that results when one corporation buys more than half the stock of another corporation and, thus, controls the second corporation

  10. What are the three types of mergers? • (1.) horizontal mergers: when two corporations merge that are in the same business • Example: When a hamburger business buys another business • (2.) Vertical mergers: When corporations involved in a “chain” of supply merge • Example: a paper company buying the lumber mill that supplies it with pulp

  11. What are the three types of mergers? • (3.) Conglomerate merger: a large corporation made up of smaller corporations dealing in unrelated businesses • Example: Procter & Gamble is a multinational conglomerate. P & G produces Cover Girl, Pert Plus, Clearasil, Folgers Coffee, Pringles potato chips, Jif peanut butter, Crest toothpaste, Nyquil, dawn dish soap

  12. Regulatory Agencies • Besides using antitrust laws to foster a competitive atmosphere the government uses direct regulation of business pricing and product quality • These agencies exist at the federal, state, and even local levels • Examples:Federal Trade commission, Food and Drug Administration, Federal Communications Commission

  13. Vocab • Deregulation: reduction of government and control over business activity

  14. When did deregulation take place? • In the 1980’s and 1990’s many industries were deregulated. • The belief behind this was that it would actually decrease the amount of competition in the economy • Example the FCC letting up which caused the entry of pay-TV, Cable, and satellite systems

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