Promoting and Protecting Competition How does the government work to ensure that free markets are free and that consumers benefit from competition?

Government Regulation of Competition Maintaining Economic Competition: Markets work the best when there are lots of buyers and lots of sellers. This fosters competition which is good for consumers. Monopolies – market controlled by one business. Often results in high prices and low quality products. - Sherman Anti-trust Act (1890) – banned illegal business combinations and monopolies - The government has used the Sherman Anti-trust Act several times to prevent a single business owner from controlling prices and products. JP Morgan’s Northern Securities in 1904 John D. Rockefeller’s Standard Oil in 1911 AT&T in 1974 Microsoft in 2004

Government Regulation of Competition Natural monopolies – LEGAL: Local utilities like water, electricity, natural gas, cable, etc. – Competition isn’t efficient, so businesses are allowed to be monopolies but are heavily regulated by the govt. to ensure proper market practices. Oligopolies – market control by a few – LEGAL - Car manufacturers, oil companies, etc.

Government Regulation of Competition Mergers – combination of businesses – LEGAL as long as the merger does not create a monopoly. The govt. can prevent a merger that will cause one. (Food Lion in NC) - Vertical- merge different levels/stages of production. Ex: Hog farm & trucking company - Horizontal – merger of “like” companies for efficiency. Ex: BellSouth/Cingular/SBC/AT&T - Conglomerates – merger of various businesses for profit Ex: GE – electricity, insurance, real estate, NBC

International Trade One way for the government to promote competition is ensure easy interstate and international trade. When there are more available products and more businesses, consumers are usually better off. Why do countries specialize? Certain countries are very good at producing certain products and terrible with others. The US can’t produce bananas. Most developing countries can’t produce airplanes and cars.

International Trade Economic Interdependence: No person or nation is truly self-sufficient. We must rely on each other (people and nations) to produce all of the things we want and need. Effects of Interdependence: Environmental and Political problems in one country can cause economic problems in many other countries. Governments must enact policies that allow their citizens access to products made in other countries.

International Trade Policies Free Trade Agreements: Nations can legally agree that they will limit or prevent trade between the two nations. NAFTA EU Free Trade Issues: Companies can more easily move their factories to another country. Domestic businesses my be hindered by increased trade with foreign companies

International Trade Policies Protectionist Trade Policies: Many nations limit imports to protect domestic producers of the same product. Tariffs: Taxes on imports - Make prices for the imported goods more expensive Quotas: Limits on the number of specific goods that can be imported. Ex: Japanese Cars