George Stigler developed the economic theory of regulation in the late 1960s, arguing that, instead of regulation being imposed on industries in genuine democratic efforts to protect consumers, big businesses seek out government regulation in an effort to gain monopoly or cartel powers they cannot obtain by market methods (Edwards, 2002). Historically, big businesses have been responsible for creating most government regulatory agencies that will benefits their interests (Bartlett, 2002). Regulation helps erect barriers to entry for smaller businesses because it serves as an overhead cost that big businesses can more easily absorb than smaller businesses with less revenue. For example, the Federal Communications Commission makes it difficult to get into the radio, television, or telecommunications business and the Food and Drug Administration limits the pharmaceutical industry to a few big businesses that can afford the prohibitive cost of testing drugs. The Civil Aeronautics Board (CAB) was a government agency that regulated the airline industry from 1938 to 1978 (Alden). During this time, it refused to allow a new firm to enter the market despite 150 applications. After President Carter deregulated the airline industry in 1978, fourteen new firms entered the industry within five years and experts believe this produced fares that were much lower than then would have been under regulation.

Finally, Stigler believes that market power by a few companies results in negative labor tensions. During the 1970s, a time when labor was more heavily concentrated in a small number of large corporations, Congress came down more strongly on labor's side than it did in subsequent decades (Uchitelle, 1989). The 1970s included extensive legislation that set safety and health standards in the workplace, regulated company pension plans to assure that they would be properly funded and supported hikes in minimum wages. and, union membership was twenty-four percent of the total workforce in the 1970s versus seventeen...

Of course, the higher labor costs driven by government and unions were, like the cost of other government regulations, more affordable for big businesses. The losers were small and medium business who had to cut back on employees and the workers who became unemployed.
In summary, big business means bad business. Big businesses are able to make greater profits than would be possible in a fully competitive market. In a competitive market, production rises to a level where marginal costs equal marginal revenue. but, more monopolistic markets are just concerned with maximizing profit per unit and have no concerns for socially desirable levels of production. Despite economies of scale of large organizations in production, they have negative social costs as well such as having too much control of their suppliers and being too slow to respond to market conditions. Big businesses use their monopolistic power to influence the government to erect barriers to market entry to protect them from the efficiencies of the free market. Further, labor's fear of the concentration of jobs in big businesses encourages undesirable unionization and government labor laws. For all these reasons, big businesses ought to be dismantled as Stigler suggests.

Bibliography

Alden, L. Competition and market power. http://www.econoclass.com/imperfectcompetition.html

Bartlett, B. (2002, March 27). The Enron template. Natioal Review. http://www.nationalreview.com/nrof_bartlett/bartlett032702.asp

Corporations in the United Stats. U.S. Department of State. http://economics.about.com/od/smallbigbusiness/a/corporations.htm

Edwards, J.R. (2002, March). Do big corporations control America? The Freeman: Ideas on Liberty. Vol 52, No. 3. http://www.fee.org/publications/the-freeman/article.asp?aid=4061

Micro. http://library.thinkquest.org/C004323/low/micro2.html

Stigler, G.J. The case against big business.