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Monopolies

Economics Monopolies Presentation
by

Bino Rubino

on 13 December 2012

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Transcript of Monopolies

G O Monopolies AT&T- Bell Systems Alexander Bell patented telephone technology in 1876- held patent monopoly until the early 1900s

Competition began to develop

Theodore Vail became president: "One Policy, One System, Universal Service"

Government believed the telecommunications industry was a natural monopoly so they started to warm up to Vail's "One System, Universal Service" idea

In 1918, AT&T developed nationalized grid, increased their rates, recieved guaranteed income from government despite massive profits, and recieved discriminatory rate policies AT&T- Bell System AT&T had achieved a monopoly over the industry from 1918 until 1974

However even with monopolized status, continued to innovate and improve (Telstar I and...)

Antitrust suit in 1974

Divestiture of AT&T (aka "Mama Bell") occurred finally in 1984 AT&T- Bell System Major Controversy- was the government originally right in calling it a natural monopoly or should it have been broken up? There was competition before government intervened in the 1910s

Telecommunications grids are similar to infrastructure grids

Innovations still being made while in monopoly status

Once broken up, pieces still ended up in basically 2 major firm (although competition between the two firms have helped customers today) Unregulated Monopolies today- Luxottica Luxottica Monopoly- The Game You own a Monopoly once you land own all colors in a set, or utilities in a set

You can either land on the space to buy it, or you can negotiate and purchase it from other competitors

Once you own the monopoly on the set- you can start to build on your properties, causing the charges (and your profits) to sky-rocket if a player lands on your monopolized set Other Background Information United States Postal Service (USPS) -Article 1 Section 8 Clause 7 of the Constitution gives the American government the exclusive rights to establish post offices and post roads

-Free from state and federal taxes and government restrictions

-Workforce of 574,000 and 218,000 vehicles

-Obligated to provide postal service to every American United States Postal Service -Overall, a very beneficial government controlled monopoly

-Handled over 160 billion pieces of mail in 2012

-Does not receive any direct tax-payer dollars

-uniform price and quality of service regardless of
geographical location or wealth

-USPS only has jurisdiction over non-urgent letters

-Private package delivery services, like FedEx and UPS, have been able to flourish due to the USPS' restrictions 1990's Microsoft Monopoly -In 1998, Microsoft was accused of violating the Sherman
Antitrust Act of 1890 in the case of United States v. Microsoft

-Microsoft bundled their very popular operating system with their web browser, Internet Explorer

-During this time, Windows made up 90-95% of the micro computer operating system market

-Other search engines, like opera, could not survive Microsoft Monopoly Solution -Defense stated "The current popularity of Windows does not mean that its market position is unassailable. The potential financial reward for building the "next Windows" is so great that there will never be a shortage of new technologies seeking to challenge it. "-Bill Gates, "The Economist", 6/13/98

-Opposition stated "Microsoft's agenda isn't innovation, it's imitation, as well as the imposition of suffocating control over user choices and an ever-widening monopoly." ~Ralph Nader and James Love, "ComputerWorld", 11/9/98

-A settlement was reached in 2002 and Micorsoft was restricted

-Since then other search engines, instant messaging and other computer-related firms have flourished as a direct result ERIC! ERIC! Eric! ERiC!?> Eric 8==>~~~>:= Review Concepts "baby bells" continued to consolidate until extremely recently AT&T- Bell System The Monopoly of the Millennium:
Standard Oil Alexander Bell patented telephone technology in 1876- held patent monopoly until the early 1900s

Competition began to develop

Theodore Vail became president: "One Policy, One System, Universal Service"

Government believed the telecommunications industry was a natural monopoly so they started to warm up to Vail's "One System, Universal Service" idea

In 1918, AT&T developed nationalized grid, increased their rates, received guaranteed income from government despite massive profits, and received discriminatory rate policies Monopoly- The Game Monopoly- The Game You own a Monopoly once you land own all colors in a set, or utilities in a set

You can either land on the space to buy it, or you can negotiate and purchase it from other competitors

Once you own the monopoly on the set- you can start to build on your properties, causing the charges (and your profits) to sky-rocket if a player lands on your monopolized set AT&T had achieved a monopoly over the industry from 1918 until 1974

However even with monopolized status, continued to innovate and improve (Telstar I and... might look familiar)

Antitrust suit in 1974 Divestiture of AT&T (aka "Mama Bell") occurred finally in 1984 " AT&T- Bell System AT&T- Bell Systems Possibly THE richest man in history
(.....inflation adjusted) Major Controversy- was the government originally right in calling it a natural monopoly or should it have been broken up?

There was competition before government intervened in the 1910s

Telecommunications grids are similar to infrastructure grids

Innovations still being made while in monopoly status

Once broken up, pieces still ended up in basically 2 major firm (although competition between the two firms have helped customers today) John D. Rockefeller How Did the Richest Man
Get So Rich??? Modern Unregulated Monopoly- Luxottica Established in In 1870, Rockefeller, together with his brother William, Henry M. Flagler and Samuel Andrews
Immediately used cutthroat methods to eliminate competition
1873- 80% of oil refining industry in Cleveland
Stock market crash & recession helps Standard Oil absorb N.E. competitors
1878- 90% of whole US industry
Once Horizontal integration is complete, they Vertically integrate. Luxottica Variety- yeah right

Price setter: Luxottica can set whatever prices they want, and people still pay the exorbitant prices. As long as they make pricing decisions where there is still demand and high profits, they can do whatever they want in the market

They have the OPTICAL ILLUSION of variety and competition but are actually a monopoly... Brilliant. 1. Absolute control over prices. Std. Oil could restrict the amount of oil sold (as opposed to multiple sellers) and raise prices to maximize profit.
2. Enormous economies of scale from massive
production quantities
3. Economies of scale from vertically integrating into railroad lines, retail outlets, and other essential services (all composed the Std. Oil Trust) Monopolies
Nick Rubino
Eric Bland
Elijah Kay Simulation We are a company that produces widgets, and we have an unregulated monopoly in your town

The base market price is $2 for a widget.

We as the monopoly will set prices- and have 4 rounds of pricing

You were given a card that tells you your willingness to pay for the widget. You must obey your card's instructions, and must purchase a widget if you are allowed to

Lets see what happens when dealing with a monopoly... est. worth 300-600 Billion USD Carnegie Steel Monopoly patent- gives inventor the exclusive right to sell a new product for a period of time

franchise/ licensing scheme- government designates a single firm to sell a particular good

natural monopoly- a single firm serves entire market because not cost effective for another to enter- generally public utilities (water, electricity)

Regulated monopoly- a monopoly that is under the supervision or licensing scheme of the gov't, limited in pricing by government

Monopolies only have as much pricing power as the demand of their product allows Basic Anti-Trust Legislation Carnegie had adapted an new innovative way of producing and made mass manufacturing cheaper.
Carnegie had a foothold in the market since the 1880's, and formed the Carnegie Steel Company in 1882.
He practiced a different style of consolidating the market than Rockefeller.
Eventually he bought out most of the competition
Owned whole production inputs from start to finish (i.e. raw materials, furnaces, ships & railroads) The Woes of Std. Oil and
US Steel Set an example for other monopolists
Became rich at the expense of small business owners, costumers, and other services/industries affected by the monopolists increase in price.
Workers began to strike bc of bad working conditions & pay
Monopolists often used fraud, political corruption, and even violence to maintain power
harmed natural resources to obtain steel & oil. Sherman Antitrust Act- less about trust, and more about preserving competition in a market

Clayton Antitrust Act- similar idea to Sherman act but gave government more clear enforcement, penalties, and exemptions

Much of the Antitrust legislation was based around keeping competition, and ensuring continuing innovation Luxottica is biggest eyewear company in the world

Oakleys, ralph lauren, prada, dolce cabanna, tiffany, vogue, coach, polo, chanel, Ray-Ban, Versace

Luxottica owns the name for all of these "competitors" in the glass department and designs and sells all of the pairs of glasses

Bought Lens-Crafters, Pearle Vision, Oliver Peoples, Target Optical, Sears Optical, and Sunglass Hut

Owns EyeMed- the 2nd largest eye care insurance provider
Full transcript