A few days ago, I mentioned my 1974 antifreeze price research for Ralph Nader. Commenters said (1) the government shouldn’t be involved in regulating prices and (2) did we ever find out why those antifreeze prices skyrocketed?
On (1): That’s generally true, government shouldn’t be setting prices arbitrarily. But government does have a role on prices when monopolization or restraint of trade improperly tampers with market forces.
Beyond that, in 1974, in reaction to inflation caused by the Arab Oil Embargo, Congress gave President Ford authorization to create the Council on Wage and Price Stability, which didn’t exactly control wages or prices, but tried to embarrass businesses and unions that seemed to be demanding too much.
On (2): What caused the hyper-inflation of antifreeze prices? Well, there never was a smoking gun, or steaming radiator, to prove conclusively why the prices nearly tripled. But certainly the shared monopoly of antifreeze makers Union Carbide, Dow Chemical and PPG Industries made gouging easy.
In those golden olden days, I dropped in regularly at the library of the Justice Department’s Anti-Trust Division. There, among the musty old law books, I’d check the print-out of the latest figures on concentration of industry -- industry by industry. I may be mistaken, but my impression is, we had many more near-monopolies then.
Conflicting trends. The rule of thumb was (and is) that, if four or fewer companies account for more than 40 percent of any industry’s sales, that industry is too concentrated to have truly competitive prices. In the 1970s, the anti-competitive bastions included the auto industry, the steel industry, the chemical industry, the telephone industry (though it was regulated), the paper industry, the drug industry, the mainframe computer (IBM) industry, and possibly the gasoline distribution industry.
Today, many of those same industries have stiff competition, both within and outside the United States. The only industries that seem more monopolized today (and I don’t get to see the Anti-Trust Division’s print-outs anymore) are the relatively new personal computer industry, the software industry, banking and retailing (Wal-Mart).
I’ll have to see more data, but many of the trends seem to be dampening prices and spurring innovation. That is good. On the other hand, our information and financial sectors seem to have created a new, insulated, hyper-rich class. That is troubling.
Frank Warner
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