The Threat Of MonopolyIn the late 19th century, the corporation was viewed by many as the chief instrument of monopoly. It was commonly argued that, by raising vast amounts of capital, corporations could combine or collude with competitors to control prices and inhibit genuine competition.
A monopoly exists in theory when one firm controls production and sale of total output of a commodity. In practice, however, a definition based on control of a specified percentage (often 33 percent) of total sales is often used.
In both theory and practice, large companies can become monopolies by absorbing smaller ones through stock purchases on the open market. The giants then raise prices, causing people who need their products to pay a larger amount than before.
U.S. companies are getting bigger -- current corporate giants with some $1 thousand-million of assets dwarf the giants of the late 19th century -- but it cannot be assumed that monopolistic conditions are increasing.
To be sure, in the last 100 years, many persons have been concerned about what is viewed as breakdown of domestic competition and control of basic industries by a few large corporations. Many basic industries -- the automotive and steel-producing industries, for example -- traditionally were "oligopolies" dominated by a few major corporations.
At the same time, in recent years, many large U.S. corporations have been shown to be vulnerable to new forms of competition. U.S. consumers can buy goods from foreign producers; in the case of automobile, they can purchase products made by Honda, Toyota, Hyundai or Volvo, to name a few. In many cases, consumers or producers can switch to substitutes; for example, they can use aluminum, glass, plastics or concrete instead of steel. In the newer industries, such as computers, small companies have shown themselves capable of moving faster to exploit new technologies than have giant corporations.
Some people argue that a concentration of economic power is dangerous because it may lead managers to put personal or corporate gain above public welfare. The U.S. government has tried to reap the advantages of large-scale organization while minimizing the dangers through legislation, such as the Interstate Commerce Act and the Sherman Antitrust Act. The Federal Trade Commission and the Antitrust Division of the Justice Department are mandated to watch for potential monopolies and to prevent mergers, or take steps to break up companies when a lack of competition can be demonstrated to hurt the consumer.
Anti-monopoly efforts will long be measured against the Justice Department's success in forcing the breakup of American Telephone and Telegraph Co. (AT&T), the world's largest and most prosperous telecommunications network. In 1974 the Justice Department sued AT&T for attempting to monopolize the telephone industry. In 1982 an agreement was announced whereby AT&T would divest itself of its 22 local operating companies, effective January 1, 1984. AT&T was allowed to retain the Western Electric Company (its manufacturing subsidiary), the Bell Telephone Laboratories (its research subsidiary) and its long-distance telephone business. In addition, it was allowed to expand into previously prohibited areas including data processing, telephone and computer equipment sales and computer communication devices. AT&T rapidly moved into the computer business; after some halting and mostly unsuccessful efforts, in 1991 it took over NCR Corp., one of the major American computer companies.
As a demonstration of the vigorous enforcement of U.S. antitrust laws and the effort to safeguard competition, the AT&T breakup was an unqualified success. Although AT&T continued to have about two-thirds of the long-distance telephone market in the early 1990s, it no longer held a monopoly. Vigorous competition was coming from such rivals as MCI Communications and U.S. Sprint Communications, neither of which had existed two decades earlier. Still, the breakup of AT&T remained a subject of controversy well into the 1990s, as divested parts of the corporation -- the so-called "Baby Bell" companies -- sought to enter entirely new businesses, and many residential and business telephone users worried about rising prices and what some regarded as less reliable telephone service. Still others, however, enthusiastically embraced expected benefits of rapid technological change in the traditional telephone system. The question of how much regulation was optimal -- for meeting producer and consumer needs -- was still being hotly debated in the 1990s.