The Rise of Big Business

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The Rise of Big Business
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How were corporations able to form monopolies?
Example McDonalds
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What ingredients are necessary to make a Big Mac?
beef
mustard
cheese
sauce
lettuce
bread
tomato
sesame seeds
onion
pickles
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How does McDonalds 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?
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NO!
They pay other companies to grow their produce,
raise the cattle, bake the bread, and produce all
of the other ingredients they need.
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The price McDonalds 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.
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With what companies does McDonalds compete for
business?
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How can McDonalds attract customers who might go
to the competition?
1) Make a better product
2) Lower the price
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What can McDonalds do to lower prices to attract
more customers?
1) Use cheaper ingredients
2) Operate at a loss
3) Cut down on costs
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If McDonalds 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 McDonalds control of the entire process
of making and delivering hamburgers
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Buy up the cattle ranches
Buy up the farms
Buy up the bakeries
Buy up the transport companies
Result Lower long-term costs
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What would it be called if McDonalds owned all of
those other companies?

• VERTICAL INTEGRATION

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With lower costs, McDonalds can lower their
prices.
If they lower prices enough, what will happen to
the competition?
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McDONALDS COULD ALSO BUY ALL OF THE COMPETING
RESTAURANTS.WHAT WOULD THAT BE CALLED?

• HORIZONTAL
• INTEGRATION

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With no competition, what can McDonalds do to
prices?
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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.
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Who enforces the law on illegal Monopolies?

• The Federal Trade Commission
• The Justice Department

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To stop monopolies

• SHERMAN ANTI-TRUST ACT

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Some monopolies, however, are legal. What are
some examples?
Local Cable Company
PECO
Philadelphia Suburban Water Company
In other words, PUBLIC UTILITIES
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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.
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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.
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So if monopolies are bad for consumers, arent
they ALWAYS bad?

• Sometimes the Government has to offer monopolies
  to encourage businesses to take risks.

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The End