In the late 19th century, many Americans feared that corporations could raise vast amounts of capital to absorb smaller ones or could combine and collude with other firms to inhibit competition. In either case, critics said, business monopolies would force consumers to pay high prices and deprive them of choice. Such concerns gave rise to two major laws aimed at taking apart or preventing monopolies: the Sherman Antitrust Act of 1890 and the Clayton Antitrust Act of 1914. Government continued to use these laws to limit monopolies throughout the 20th century. In 1984, government "trustbusters" broke a near monopoly of telephone service by American Telephone and Telegraph. In the late 1990s, the Justice Department sought to reduce dominance of the burgeoning computer software market by Microsoft Corporation, which in just a few years had grown into a major corporation with assets of $22,357 million.
In general, government antitrust officials see a threat of monopoly power when a company gains control of 30 percent of the market for a commodity or service. But that is just a rule of thumb. A lot depends on the size of other competitors in the market. A company can be judged to lack monopolistic power even if it controls more than 30 percent of its market provided other companies have comparable market shares.
While antitrust laws may have increased competition, they have not kept U.S. companies from getting bigger. Seven corporate giants had assets of more than $300,000 million each in 1999, dwarfing the largest corporations of earlier periods. Some critics have voiced concern about the growing control of basic industries by a few large firms, asserting that industries such as automobile manufacture and steel production have been seen as oligopolies dominated by a few major corporations. Others note, however, that many of these large corporations cannot exercise undue power despite their size because they face formidable global competition. If consumers are unhappy with domestic auto-makers, for instance, they can buy cars from foreign companies. In addition, consumers or manufacturers sometimes can thwart would-be monopolies by switching to substitute products; for example, aluminum, glass, plastics, or concrete all can substitute for steel.
Attitudes among business leaders concerning corporate bigness have varied. In the late 1960s and early 1970s, many ambitious companies sought to diversify by acquiring unrelated businesses, at least partly because strict federal antitrust enforcement tended to block mergers within the same field. As business leaders saw it, conglomerates -- a type of business organization usually consisting of a holding company and a group of subsidiary firms engaged in dissimilar activities, such as oil drilling and movie-making -- are inherently more stable. If demand for one product slackens, the theory goes, another line of business can provide balance.
But this advantage sometimes is offset by the difficulty of managing diverse activities rather than specializing in the production of narrowly defined product lines. Many business leaders who engineered the mergers of the 1960s and 1970s, found themselves overextended or unable to manage all of their newly acquired subsidiaries. In many cases, they divested the weaker acquisitions.
Next Article: Mergers in the 1980s and 1990s
This article is adapted from the book "Outline of the U.S. Economy" by Conte and Carr and has been adapted with permission from the U.S. Department of State.