Warmup

 2 minutes: Think of some big businesses in the
American economy today.
 1 minute: Share with neighbors.
 Share with class

 Businesses of this sort must find some advantage in
being big; otherwise they would not work so hard to
grow and expand.
 Consumers must find some advantage in bigness,
too; otherwise, they would not choose to buy things
produced or sold by large companies.
 What might be some of the benefits of “bigness,”
for businesses and for consumers?

 What controversies have arisen as a result of these
traits of “bigness”?

 Some big businesses late in the nineteenth century
were called trusts.
Examples of Trusts

 American Sugar Refining Trust
 American Tobacco
 Copper Trust
 Standard Oil Trust
 Steel Beam Trust
 United States Steel Corporation

 A trust was essentially a cartel (or, in other words, an
oligopoly/monopoly)
 Cartels were an arrangement in which two or more
firms in the same industry are drawn together by an
agreement intended to reduce competition and
maintain or boost profits.

 Trust agreements provided that the stock of the
various former competitors would be held by a
trustee.
 The trustee was authorized to make decisions for the
collective good of the trust — by controlling the
prices that members of the trust would charge for the
goods they produced, for example, and by
controlling output for the trust.

Railroads had benefits…

 Transcontinental railroads expedited the
transportation of goods, services and people
throughout the country.
 Output and employment increased.
…but.

 Not everybody was happy with the railroads.
 Farmers, in particular, complained bitterly about
injustices they saw in the railroads’ operations.
 The railroads acted as monopolies, the farmers
claimed, and they charged higher rates to farmers
than to others who shipped goods by rail.
 Moreover, the railroads were said to benefit unfairly
from favorable treatment by the U.S. government,
which provided them with valuable land grants and
low-interest loans.

Oligopoly Game

HOW COMPETITIVE
WERE THE RAILROADS
OF THE
1870S?
Some railroad engaged in anti-competitive practices such as price fixing.
However, it remained difficult to suppress competition even in the
railroad industry.
 Railroads added tens of thousands of miles of track in the 1870s and 1880s.
 Additional track provided opportunities for increased competition.
 Short hauls in rural areas faced little direct competition. However, long
hauls between cities usually had two or more railroads in competition.
 Efforts by railroads to form agreements to fix their rates and find other
means to reduce competition almost always failed.
 Aggressive managers or owners (such as Jay Gould) would break the
agreements and begin price cutting.
 Price cutting took a variety of forms such as price discrimination and
rebates. The effect to drive down rates, however, was the same.

 Watch “Monopolies” from “The Men Who Built
America.”

 Do Activity 25.1.
 Discuss as a class.

 HOMEWORK: Read 8.1