Contrived Competition: Regulation and Deregulation in America
This is the story of a revolution in American industry: the massive deregulation of markets by the government starting in the late 1970s. After an era of New Deal controls that lasted forty years, and in response to a stagnating economy, a new intellectual and political consensus developed in support of competitive markets. Beginning in 1978, Congress enacted a raft of deregulatory reforms, which federal agencies implemented during the early 1980s. Suddenly, the structure of markets in these sectors changed dramatically: new entrants flooded in, product and service markets were redefined, and prices fell. To survive, incumbent firms were forced to adopt entirely new strategies. Business historian Richard Vietor explains how each of four major firms was challenged by deregulation, and how its leadership struggled to adjust to new forms of intense competition. At American Airlines, we see Robert Crandall grounding aircraft, reorganizing routes, and expanding its reservation system into a competitive weapon. When El Paso Natural Gas was threatened with excess capacity and overpriced contracts, Travis Petty struggled with a strange new regulatory regime of unbundled products and services, eventually restoring his company to profitability. At AT&T, Charles Brown and then Robert Allen coped with MCI and divestiture, building a new integrated company to manage information worldwide. And Bank-America, caught short with bad loans and a deep recession in the early eighties, nearly failed before Sam Armacost and then Tom Clausen achieved an amazing turnaround in the mid-1980s. These four parallel stories illustrate a dynamic process of market restructuring and organizational adjustment. We seemanagers and regulators alike painfully learning to operate effectively as their business and political environments shift around them. The ability of top management to escape operational preconceptions, to change corporate mindsets, to redefine existing competencies, and to exercise leadership determined which firms would survive in the new world of deregulated competition.
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