Economics 201

Case of the Day: The New York City Ice Trust



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) and send your answers by email (or bring to class). 

Questions for analysis

1. Based on Hemenway's description, how effective were each of the following 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. Three prominent antitrust cases in recent years have involved AT&T (which had its telephone monopoly broken up), IBM (which was not broken up), and Microsoft (which was not broken up but was restricted in its activities). Do we learn any lessons from the ice trust case that might guide (or might have guided) policymakers in dealing with these more recent cases?

4. Some might argue that the shady activities engaged in by Charles Morse do not require antitrust enforcement as much as the vigorous enforcement of fraud laws. In comparison with recent history, is the Morse case closer to Enron's collapse amid fraudulent accounting practices or to Microsoft's software near-monopoly? Why?