How were corporations able to form monopolies? Example: McDonald’s
What ingredients are necessary to make a Big Mac? beef mustard cheese sauce lettuce bread tomato sesame seeds onion pickles
How does McDonald’s get all of their ingredients? Do they own their own lettuce farms? Do they own their own cattle ranches? Do they own their own bakery? Do they own their own mustard plant?
NO! They pay other companies to grow their produce, raise the cattle, bake the bread, and produce all of the other ingredients they need.
The price McDonald’s charges is driven, in part, by what they have to pay these other companies… … and in part by the need to attract customers who might, instead, go to the competition.
How can McDonald’s attract customers who might go to the competition? 1) Make a better product 2) Lower the price
What can McDonald’s do to lower prices to attract more customers? 1) Use cheaper ingredients 2) Operate at a loss 3) Cut down on costs
If McDonald’s was going to cut down on costs without sacrificing quality of product or service, what could they do? Buy up all the other companies they deal with, giving McDonald’s control of the entire process of making and delivering hamburgers
Buy up the cattle ranches Buy up the farms Buy up the bakeries Buy up the transport companies Result: Lower long-term costs
With lower costs, McDonald’s can lower their prices. If they lower prices enough, what will happen to the competition?
With high prices, consumers lose. One company has taken control of the entire fast food hamburger market. This is called a monopoly. Companies like U.S. Steel and Standard Oil formed monopolies just like this. The government recognized the damage to consumers and outlawed monopolies.
Some monopolies, however, are legal. What are some examples? P,G & E Pacific Bell A,T & T Cable San Jose Water Company In other words, PUBLIC UTILITIES
Why would public utilities be legalized monopolies? If companies competed to sell us water, electricity, gas, or cable, each would have to have its own pipes and wires. That would be a nightmare.
So if monopolies are bad for consumers, aren’t they ALWAYS bad? To prevent the utility monopolies from having too much control, the government regulates them. The regulatory agency is called the Public Utilities Commission. So monopolies are either illegal or regulated.