Economics “Ask the Instructor” Clip 54 Transcript
Which antitrust cases have received attention?
The federal government attempts to keep one company from gaining too much market power. The U.S. Justice Department has characterized Microsoft as a monopoly. However, there was a case in the early 1900s that received at least as much, if not more, attention than the Microsoft case. The case involved the American Tobacco Company. It is worth talking about because this antitrust case shows that economic interests are the root of industrial conflicts.
In 1890, five major tobacco companies merged to form the American Tobacco Company, sometimes referred to as the Duke Trust, which controlled 70 percent of total sales of some tobacco products. This would suggest monopoly power, the ability to control price. However, the real conflict was not with disgruntled consumers of tobacco products but with the farmers who grew tobacco. As you know, one seller is called monopoly. When there is one buyer, it is called monopsony. These terms are often used loosely in court proceedings. For example, Microsoft has been accused of being a monopoly when, in fact, it is not the sole producer of either software or of operating systems. However, Microsoft is clearly the dominant firm. This was also the case with the American Tobacco Company, but its market power was felt in both the output and input markets. Growers believed they were being exploited and claimed that only one buyer, a representative from the Duke Trust, showed up to bid on their tobacco.
In retaliation for what they perceived as exploitation, growers organized, and many agreed to withhold tobacco from the market. They did not call it a cartel, but that is what it was. On several occasions, the grower cartel also resorted to violence, sending out hundreds of “night-riders” on horseback who burned Duke tobacco warehouses.
Most of the violence, however, was directed toward tobacco growers who refused to join the Tobacco Growers Association, the growers’ cartel.
The American Tobacco Company was dissolved in 1911 as a result of the federal government’s antitrust efforts. The violence that preceded the dissolution demonstrates the importance of economic issues in the affairs of society.