Economics 201

Case of the Day: The New York City Ice Trust



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Charles Morse High School, Bath, Maine

The late 1800s was an extremely active period of corporate merger activity. Until the passage of the Sherman Act in 1890, there was virtually no federal legislation limiting the powers of companies to merge or conspire together to form "trusts," which were effective monopolies that raised prices. Even after the passage of the Sherman Act, courts were often reluctant to take action against businessmen who were simply seen to be pursuing their profit motive with particular success.

This case examines the ice trust that was formed in 1899 and 1900 by suppliers of ice to New York and other eastern cities. You should read the details of this case in David Hemenway, Prices and Choices: Microeconomic Vignettes, 3d ed. Lanham, Md.: University Press of America, Chapter 19, 189-203. Instead of answering Hemenway's questions on page 200, answer the ones below (some of which are similar to his).

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Questions for analysis

1. Based on Hemenway's description, what (if any) role did each of the following play in bringing down the ice cartel and what characteristics of ice made these factors more or less effective than they might have been with other products? (a) public outcry, (b) political pressure, (c) governmental regulation and control, (d) forces of market demand, (e) forces of market supply?

2. The theory of "contestable markets" was developed in the 1970s. It asserts that regulation of monopolies may be unnecessary in some circumstances because the threat of entry may act as an effective deterrent against high monopoly pricing, even if no competitors are already in the market. Does the ice trust case provide evidence for or against this theory?

3. Some might argue that the shady activities engaged in by Charles Morse could be better dealt with by vigorous enforcement of fraud laws rather than antitrust enforcement. Do you think this was more a problem of monopoly or of dishonesty and fraud?

Answer the questions in Moodle