CHAPTER 21
Market Power and Global Corporations
LEARNING OBJECTIVES
Describe how corporations grow in size and cite data documenting their growth.
Explain reasons behind the capitalistic tendency toward large firms with market power
OUTLINE OF CHAPTER
I. The Trend of Concentration
II. The Third Wave
III. The Fourth Wave
KEY WORDS
Celler-Kefauver Act of 1950
Federal Trade Commission Act of 1914
outlawed unfair methods of competition and established the FTC to investigate the methods of
competition used by business firms
global mergers
international mergers between corporations in different countries
interest instead
Sherman Antitrust Act of 1890
forbade any contract, combination, or conspiracy to restrain trade
vertical mergers
mergers of firms along production path from the raw materials to the factory to the wholesale
and retail sales places
;
occurring between firms
producing goods in sequence
ANSWERS TO END OF CHAPTER REVIEW QUESTIONS
Describe how corporations grow in size and cite data documenting their growth.
1. What is the difference between a horizontal merger and a vertical merger?
A horizontal merger means a big corporation absorbed other corporations that were its
2. glomerate mergers. Explain how
conglomerate mergers are different from horizontal or vertical mergers.
3. Policymakers often worry less about conglomerates and market power and more about
firms whose business is concentrated in a single industry. Why? What concerns are
there about large conglomerates?
Horizontal and vertical mergers increase market power in a single industry and are
4. What are the concerns about the concentration and size of businesses in the global
market?
5. Does a global corporation have a perfect monopoly with no competition? Explain.
Explain reasons behind the capitalistic tendency toward large firms with market power
6. What are economies of scale? Give an example of how the cost per unit of production
could be cheaper when many units rather than just a few are produced.
7. How can a firm attempting to capture all possible economies of scale end up having
market power in that industry?
Production is cheaper as output level increases. A firm with economies of scale will be
Describe the impact of firms with market power on economic outcomes.
8. What does it mean when economists say that a firm has market power? How does the
position of a firm with market power differ from that of a firm in a perfectly competitive
market?
9. Why might large firms with little competition in their market become less efficient?
10. What are the debates about the impact of advertising on businesses? on consumers? on
the larger economy?
Some economists argue that advertising involves a waste of resources, a continual drain
Compare and Contrast policies and policy debates about regulating the monopoly power of
businesses.
11. What are some of the debates about regulating monopolies? What is the logic behind the
arguments of the different points of view?
12. What are some key pieces of legislation aimed at controlling the impact of monopolies?
Sherman Antitrust Act of 1890, Clayton Act of 1914, the Federal Trade Commission Act