Title Question
The rise and fall of trusts as an organizational structure for commerce
Free markets left unregulated naturally tend to devolve into monopolies.
Why does capitalism cause monopoly?.
A good example to understand how capitalism can cause monopoly power is to look at the Gilded Age 1870s-1900s in the US.
A period almost devoid of government regulation but defined by predatory monopolies in oil, banking, steel, railroad industries.
Antitrust laws of the 1890's were successful in curbing some high visibility monopolies but there are many contemporary corporations which exhibit antitrust practices.
- United States v IBM (1969-1981),
- United States v Microsoft (2001)
- Amazon Could Have a Very Real Antitrust Problem Amazon's size alone may not lead to antitrust scrutiny. But some of its business strategies could land the company in hot water sooner or later.
- Why the AT&T-Time Warner Case Was So Closely Watched
- Big Agriculture Four global giants now dominate the industry BASF, Bayer, DowDuPont, and Chem China. According to the U.S. Department of Agriculture, seed prices have tripled since the 1990s, and since the mergers, fertilizer prices up for the first time in years.
- Big Pharma
FTC has already put a end to Pay for Delay and NY AG for Patent Hopping but Daraprim’s an anti parasite drug introduced in 1953 cost per pill still increased 5000% in 2015 suggesting their is still a problem. - US Airline Industry
since 2010 consolidation has left three major players in control of 85% of the market, with shrinking seats, regular overbooking, and crowded cabins are demonstrations consumers choice is not the primary motivation of the industry. More suspicious the industry has coordinated over capacity offerings, base ticket prices, change fees, and fare structures.
Question 1
We say "anti-trust" because historically trusts were the preferred vehicles for operating monopolies. Why trusts?.... Why did trusts particularly suit the desired non-ownership function? Why not some other legal entity, e.g., corporation or partnership?
A Monopoly is a person or corporation that has total control over a segment of the economy. A trust is a type of Monopoly where a group of persons or corporations work together, rather than compete amongst themselves to exhibit the same power over a sector of the economy. While the United States has had both, Trust are more prevalent because it's easier for would be competitors to coordinate than it is for a single entity to dominate a sector of the economy.
Monopolies and Trusts Trusts are the organization of several businesses in the same industry and by joining forces, the trust controls production and distribution of a product or service, thereby limiting competition. Monopolies are businesses that have total control over a sector of the economy, including prices.
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Question 2 I know part of the answer is that there were regulations (laws) on who could own what. What were the ownership prohibitions exactly?
- US health insurance industry
An example of the government legislating trusts would be the US health insurance industry. the McCarran Ferguson Act of 1945 established Health Insurance Trusts by exempting health insurance companies from many federal regulations most notable anti trust laws and legally allowing them to collude on prices. In this case it would be state laws which are the most influential on these trusts because federal laws generally aren't applied. Notable exception would be the Affordable Care Act, which didn't regulate new competitive practices or anti price colluding but rather just set minimum standards of coverage and restrictions on overhead above 25% of gross sales. These new laws did not effect the trust component of the US health insurance industry by creating competition but rather attempted to make the trusts more responsive to consumer needs through regulation.
A free market allows for those who have some advantage to put those who don't out of business, History demonstrates that when the US market was devoid of anti trust laws or those laws where not enforced; Trusts and Monopolies thrive.
Most historic American trusts (railroad, banking, oil, steel, communications, sports) evolved independent from the government, however; since anti trust legislation was first passed by Congress in the late 1880's (Sherman Antitrust Act of 1890) all subsequent monopolies have benefited from the Government regulating bodies looking the other way. Other American trusts which I looked into as being established by the Government fell short of the mark. In both cases it appears they became monopolies prior to receiving government sanction for their monopolies.
- Major League Baseball
Unlike American Football, Basketball, or Hockey; American baseball enjoys a monopoly and general shield from U.S. anti trust laws. It goes back to the early 1900's when MLB used their dominance over the sport and players to crush would be competitor Leagues. MLB bared players who were not under contract with MLB teams from signing with a competitor league, telling the players they would not be welcomed back into MLB in future contracts. This practice was upheld in Federal Baseball Club of Baltimore v. National League with the claim MLB operates outside of the anti trust laws. This finding placing MLB outside of US anti trust laws has been upheld several times since including just recently in June 12, 2018.
Will Supreme Court Review Challenges to Baseball Antitrust Exemption?
Baseball’s judicially-created antitrust exemption is now nearly 100 years ago. Federal Baseball Club v. National League, 259 U.S. 200 (1922). Justice Holmes’ opinion has stood the test of time
AT&T
A monopoly for much of the 20th century being the only company for telephone service in both the United States and Canada. The relationship with the government sanctioning this monopoly was formalized in 1913 with the Kingsbury Commitment and lasted until the early 1980's when AT&T was broken up and the Telephone industry was deregulated.Alcoa
The largest aluminum producer in the world. It was influential in WWII as the United States went from producing 6% of all combatant aircraft in 1939, to 41% in 1944. Alcoa however also developed it's monopoly independent from government mandate. It was having antitrust issues with the government as early as 1911, broken up by court order in 1945.
History of Alcoa
Judge Learned Hand ruled that although Alcoa had not intended to create its monopoly, the fact remained that it had a monopoly on the domestic aluminum market in violation of antitrust law and it would be in the nation's best interest to break it up.
World War II aircraft production
Question 3:1
What ultimately made trusts an inferior vehicle for commercial enterprise? In other words, why don't some (non-monopolistic) firms continue to organize as trusts?
Trusts are not an inferior model for conducting business from the perspective of the Trust. Some of the wealthiest men in American History JP Morgan, Rockefeller, Carnegie, and Cornelius Vanderbilt were all beneficiaries of Trusts or Monopolies. To be the head of a monopoly or trust is to be wealthy, powerful, and politically influential.
What makes them inferior vehicles for commerce is from the perspective of the greater economy. Trusts are anti competitive, produce expensive products, and ultimately stifle innovation. They stifle innovation in their sector of the economy as trusts by definition don't compete for market share but dictate to the market. They stifle innovation across the greater economy as the entire economy is forced to pay large overhead and incur greater expenses due to higher costs from the trust (higher transport costs, steel costs, software costs etc). Stated another way monopolies or trusts inhibit the entire economy by taking power out of the hands of consumers along with the incentive to compete and improve ones production for the trust.