Question

In the post-Civil War era, the sacrosanct theory of Adam Smith - his "Invisible Hand" - which claimed that the proliferation of competitors imposed an automatic limit to the price that can be charged for any item - was now being challenged. Now, giant industrial entities were developed, whose chiefs and managers tried to control the market, claiming that the efficiencies of scale in itself would be an effective leveler of prices, and thus more competition was not needed. Now, consider the possibilities of competition as a regulating device... Can prices regulate and self-limit when there are only a few giant producers? What other checks on prices are possible?

Answer 1

In the post-Civil War era, the belief in Adam Smith's Invisible Hand theory was challenged by the emergence of giant industrial entities. With fewer competitors, these entities sought to control the market and set prices based on economies of scale. However, without competition, prices may not regulate and self-limit. Other checks on prices include government regulation and anti-monopoly legislation.

Step-by-step explanation:

In the post-Civil War era, the proliferation of giant industrial entities challenged Adam Smith's theory of the "Invisible Hand" and the notion that competition alone could regulate prices. These large producers believed that they could control the market and use economies of scale to set prices. However, the absence of competition can lead to higher prices and reduced efficiency.

When there are only a few giant producers, prices may not self-regulate and self-limit. Instead, these producers may manipulate prices to maximize their profits. This can negatively impact consumers and limit their choices in the market.

To address this, other checks on prices are necessary, such as government regulation and anti-monopoly legislation. Governments can impose regulations to prevent price gouging and promote fair competition. They can also break up monopolies and regulate mergers and acquisitions to ensure a competitive market.