Anti-competitive practices
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| Competition law |
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| Basic concepts |
| Anti-competitive practices |
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Anti-competitive practices are business, government or religious practices that prevent or reduce competition in a market (see restraint of trade).
Types of anti-competitive practices
These can include:
- Dumping, where a company sells a product in a competitive market at a loss. Though the company loses money for each sale, the company hopes to force other competitors out of the market, after which the company would be free to raise prices for a greater profit.
- Exclusive dealing, where a retailer or wholesaler is obliged by contract to only purchase from the contracted supplier.
- Price fixing, where companies collude to set prices, effectively dismantling the free market.
- Refusal to deal, e.g., two companies agree not to use a certain vendor
- Dividing territories, an agreement by two companies to stay out of each other's way and reduce competition in the agreed-upon territories.
- Limit pricing, where the price is set by a monopolist at a level intended to discourage entry into a market. (Ex. Licensing)
- Tying, where products that aren't naturally related must be purchased together.
- Resale price maintenance, where resellers are not allowed to set prices independently.
- Religious / minority group doctrine, where businesses must apply tribute to a significant (normally religious) part of the community in order to engage in trade with that community. (A business that does not comply will be 50% worse off than the competitor if they do not comply with the tribute demanded by just 20% of the community)
Also criticized are:
- Absorption of a competitor or competing technology, where the powerful firm effectively co-opts or swallows its competitor rather than see it either compete directly or be absorbed by another firm.
- Subsidies from government which allow a firm to function without being profitable, giving them an advantage over competition or effectively barring competition
- Regulations which place costly restrictions on firms that less wealthy firms cannot afford to implement
- Protectionism, tariffs and quotas which give firms insulation from competitive forces
- Patent misuse and copyright misuse, such as fraudulently obtaining a patent, copyright, or other form of intellectual property; or using such legal devices to gain advantage in an unrelated market.
- Digital rights management which prevents owners from selling used media, as would normally be allowed by the first sale doctrine.
Effects
It is usually difficult to practice anti-competitive practices unless the parties involved have significant market power or government backing.
Monopolies and oligopolies are often accused of, and sometimes found guilty of, anti-competitive practices. For this reason, company mergers are often examined closely by government regulators to avoid reducing competition in an industry.
Although anti-competitive practices often enrich those who practice them, they are generally believed to have a negative effect on the economy as a whole, and to disadvantage competing firms and consumers who are not able to avoid their effects, generating a significant social cost. For these reasons, most countries have competition laws to prevent anti-competitive practices, and government regulators to aid the enforcement of these laws.
The argument that anti-competitive practices have a negative effect on the economy arises from the belief that a freely functioning efficient market economy, composed of many market participants each of which has limited market power, will not permit monopoly profits to be earned...and consequently prices to consumers will be lower, and if anything there will be a wider range of products supplied.
Some people believe that the realities of the marketplace are sometimes more complex than this or similar theories of competition would suggest. For example, oligopolistic firms may achieve economies of scale that would elude smaller firms. Again, very large firms, whether quasi-monopolies or oligopolies, may achieve levels of sophistication e.g. in business process and/or planning (that benefit end consumers and) that smaller firms would not easily attain. There are undoubtedly industries (e.g. airlines and pharmaceuticals) in which the levels of investment are so high that only extremely large firms that may be quasi-monopolies in some areas of their businesses can survive.
Many governments regard these market niches as natural monopolies, and believe that the inability to allow full competition is balanced by government regulation. However, the companies in these niches tend to believe that they should avoid regulation, as they are entitled to their monopoly position by fiat.
In some cases, anti-competitive behavior can be difficult to distinguish from competition. For instance, a distinction must be made between product bundling, which is a legal market strategy, and product tying, which violates anti-trust law. Some advocates of laissez-faire capitalism (such as Monetarists, some Neoclassical economists, and the heterodox economists of the Austrian school) reject the term, seeing all "anti-competitive behavior" as forms of competition that benefit consumers.
See also
- Anti-competitive practices of Apple Inc.
- Amazon.com controversies#Anti-competitive practices
- Cartel
- Antitrust law
- Predatory pricing
- Microeconomics
- Oligopoly
- Price discrimination
- Natural monopoly
- Loss leader
- Austrian school
References
- ↑ Michael Burgan (2007). J. Pierpont Morgan: Industrialist and Financier. p. 93. ISBN 9780756519872.
Further reading
- McChesney, Fred (2008). "Antitrust". In David R. Henderson (ed.). Concise Encyclopedia of Economics (2nd ed.). Indianapolis: Library of Economics and Liberty. ISBN 978-0865976658. OCLC 237794267.