Our society restricts most horizontal monopolies that would control the supply of one product.
But I seem to remember from economics classes a long time ago that there is another type of monopoly called a vertical monopoly. I guess ExxonMobil might be an example: it owns oil wells, pipelines, tankers, refineries, and gas stations: all the different levels of production for one product.
Is there any reason for these to be restricted as aggressively?
Does it have a big economic effect if a company is a vertical monopoly?
Personally, I do think the concept of a vertical monopoly has much pertinence without a horizontal component somewhere. In other words, if it’s not a horizontal monopoly at some point in its supply chain, then it’s not a genuine monopoly.
For example, Ford used to be incredibly vertically integrated: it made its own glass, smelted its own steel, made the cars, and then distributed them. But with all that vertical integration, it didn’t have a monopoly on anything–other companies made cars too.
I’ll be interested to see some other opinions on this.
That’s what any monopoly does, by definition. The distinction between a “horizontal monopoly” and a “vertical monopoly” applies more toward how a monopoly in a particular product was achieved.
One classic example of a “vertical monopoly” was AT&T’s near-monopoly over long distance telephone service prior to 1984. It achieved this by owning most of the Local Exchange Companies (the state Bells) in the country, which offered preferential access to AT&T long distance service.
Exxon is vertically integrated, but it isn’t a vertical monopoly. It competes with other oil companies.
Monopolies in general are subject to antitrust law; the distinction between “vertical” and “horizontal” comes into play most often when a court considers remedies. For example, the breakup of AT&T required “vertical divestiture”–that is, separation of local and long distance ownership–because vertical integration was the root of the long distance monopoly. In other cases, horizontal restrictions are more appropriate–as, for example, in the breakup of Standard Oil into regional companies in 1911. Many antitrust settlements involve both types of restrictions.
The law has changed–or at least the way the Justice Department chooses to attempt to enforce the law has changed. Beginning in the 1980’s, Justice made it clear that it would no longer oppose joint ownership of movie studios and theaters, and such cross-ownership is common today.
You’re correct, however, that the earlier (1938-49) case of United States v. Paramount was another good example of an antitrust ruling requiring vertical divestiture. The courts found the studios of the day to be guilty of a variety of anti-competitive practices such as price-fixing, pooling, and “block booking”, and chose to require theater divestiture as the best way to prevent such practices.