Anti-competitive practices Anti-competitive practices
are business or government practices that unlawfully prevent or reduce competition
in a market.
The debate about the morality of certain business practices termed as being anti-competitive has continued both in the study of the history of economics and in the popular culture. Anti-trust laws differ among state and federal laws to ensure businesses do not engage in competitive practices that harm other, usually smaller, businesses or consumers. These laws are formed to promote healthy competition within a free market by limiting the abuse of monopoly power. Competition allows companies to compete in order for products and services to improve; promote innovation
; and provide a more choices for consumers to preference. Some business practices may be pro-competitive, economic methodological tests and empirical legal cases are used to test whether business activity constitutes as anti-competitive behavior.
Anticompetitive behaviour is used by business and governments to lessen competition within the markets so that monopolies and dominant firms can generate supernormal profits and deter competitors from the market. Therefore it is heavily regulated and punishable by law in cases where it substantially affects the market.
Anti-competitive practices are commonly only deemed illegal when the practice results in a substantial dampening in competition, hence why for a firm to be punished for any form of anti-competitive behaviour they generally need to be a monopoly or a dominant firm in a duopoly or oligopoly who has significant influence over the market.
Anti-competitive behaviour can be grouped into two classifications. Horizontal restraints regard anti-competitive behaviour that involves competitors at the same level of the supply chain. These practices include mergers, cartels, collusions, price-fixing, price discrimination and predatory pricing. On the other hand, the second category is vertical restraint
which implements restraints against competitors due to anti-competitive practice between firms at different levels of the supply chain e.g. supplier-distributer relationships. These practices include exclusive dealing, refusal to deal/sell, resale price maintenance and more.
- Dumping, also known as predatory pricing, is a commercial strategy for which a company sells a product at an aggressively low price in a competitive market at a loss. A company with large market share and is able to temporarily sacrifice selling a product or service at below average cost can drive competitors out of the market, after which the company would be free to raise prices for a greater profit. For example, many developing countries have accused China of dumping. In 2006, the country was accused of dumping silk and satin in the Indian markets at a cheaper rate which affected the local manufacturers adversely.
- Exclusive dealing, where a retailer or wholesaler is obliged by contract to only purchase from the contracted supplier. This mechanism prevents retailers to lessen profit maximisation and/or consumer choice. In 1999, Dentsply entered a 7 years court complaint by the U.S, the dental wholesaler had been successfully sued for using monopoly power to restrain trade using exclusive dealings within contract requirements.
- Price fixing, where companies collude to set prices, effectively dismantling the free market by not engaging in competition with each other. In 2018, travel agency giant, Flight Centre was fined $12.5 million for encouraging a collusive price fixing plan between 3 international airlines from between 2005-2009
- Refusal to deal, e.g., two companies agree not to use a certain vendor. In 2010, Cabcharge refused 'on commercial terms, to allow Cabcharge's non-cash payment instruments to be accepted and processed electronically by Travel Tab/Mpos' system for the payment, by non-cash means, of taxi fares by taxi passengers' and denied 'requests to it by Travel Tab/Mpos to agree, on commercial terms, to allow Cabcharge's non-cash payment instruments to be accepted and processed electronically by Travel Tab/Mpos' system for the payment, by non-cash means, of taxi fares by taxi passengers' - penalties for the first and second refusal were $2 million and $9 million respectively.
- Dividing territories, an agreement by two companies to stay out of each other's way and reduce competition in the agreed-upon territories. Also known as 'market sharing', a practice in which businesses geographically divide or allocate customers using contractual agreements that include non-competition on established customers, not producing the same goods or services and/or selling within specific regions. Boral and CSR formed a pre-mix concrete cartel and was penalised for bid rigging, price fixing and market sharing at an amount over $6.6million and a maximum of $100,000 on each of the 6 executives involved. The companies had agreed to recognise clients as belonging to suppliers without competition over regular meetings and phone conversations. Company market shares were monitored to ensure the agreement was not breached - this led to over-charging on construction quotes which were used by federal, state and local government projects.
- Tying, where products that are not naturally related must be purchased together. This incumbent strategy forces the buyer to purchase an unnecessary product from a separate market, implicitly lessening competition in various markets by increasing unnatural barriers to entry as entrants are unable to compete on a full line of products nor on price. In 2006, Apple iTunes iPod lost a $10million a 10 year anti-trust case when iPods sold between September 2006 to March 2009 that were only compatible with tracks from the iTunes Store or those downloaded from CDs.
Also criticized are:
The Chicago school of economics
argues that vertical mergers, usually formed under anti-competitive intention, may be pro-competitive to eliminate double marginalisation
A chain of monopolists under can cause prices that extract beyond consumer surplus as wholesalers mark up prices, retailers have the power to transfer this cost price onto the retail price.
It is usually difficult to practice anti-competitive practices unless the parties involved have significant market power
or government backing. This debate about the morality of certain business practices termed as being anti-competitive has continued both in the study of the history of economics and in the popular culture, as in the performances in Europe in 2012 by Bruce Springsteen
, who sang about bankers as "greedy thieves" and "robber barons
During the Occupy Wall Street
protests of 2011, the term was used by populist Vermont Senator Bernie Sanders
in his attacks on Wall Street. He said "We believe in this country; we love this country; and we will be damned if we're going to see a handful of robber barons control the future of this country."
The business practices and political power of the billionaires of Silicon Valley has also led to their identification as robber barons.
are often accused of, and sometimes found guilty of, anti-competitive practices. Anti-competitive incentives can be especially prominent when a corporation's majority shareholders own similarly sized stakes in the company's industry competitors.
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.
A key distinguishing factor that separates anti-competitive behaviour from innovative marketing and fair competition is that most of the aforementioned types of anti-competitive behaviour are only deemed unlawful if the firm that is committing the behaviour is a dominant firm within in the market to the extent where their action will have a significant influence on market behaviour. If the firm engages in such behaviour has a position of substantial market share, so much so that they are able to generate supernormal profits and force smaller companies out of the industry then it is most likely deemed unlawful.
Opponents of robber barons
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 antitrust 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.
Unfair competition includes a number of areas of law involving acts by one competitor or group of competitors which harm another in the field, and which may give rise to criminal offenses
and civil causes of action
. The most common actions falling under the banner of unfair competition include:
- Matters pertaining to antitrust law, known in the European Union as competition law. Antitrust violations constituting unfair competition occur when one competitor attempts to force others out of the market (or prevent others from entering the market) through tactics such as predatory pricing or obtaining exclusive purchase rights to raw materials needed to make a competing product.
- Trademark infringement and passing off, which occur when the maker of a product uses a name, logo, or other identifying characteristics to deceive consumers into thinking that they are buying the product of a competitor. In the United States, this form of unfair competition is prohibited under the common law and by state statutes, and governed at the federal level by the Lanham Act.
- Misappropriation of trade secrets, which occurs when one competitor uses espionage, bribery, or outright theft to obtain economically advantageous information in the possession of another. In the United States, this type of activity is forbidden by the Uniform Trade Secrets Act and the Economic Espionage Act of 1996.
- Trade libel, the spreading of false information about the quality or characteristics of a competitor's products, is prohibited at common law.
- Tortious interference, which occurs when one competitor convinces a party having a relationship with another competitor to breach a contract with, or duty to, the other competitor is also prohibited at common law.
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- ^ Bob Tourtellotte (May 31, 2012). "Bruce Springsteen: Bankers Are 'Greedy Thieves'". The Huffington Post. Reuters.
- ^ Sanders, Bernie (2015). Outsider in the White House. Verso Books. p. 278. ISBN 9781784784195.
- ^ Hanson, Victor Davis (17 August 2017). "Silicon Valley Billionaires Are the New Robber Barons". Retrieved 30 August 2017.
- ^ Motley, Seton (31 July 2017). "Silicon Valley Robber Barons Are Using Government As A Weapon Against Us". Retrieved 30 August 2017.
- ^ Condon, Madison (2020-03-01). "Externalities and the Common Owner". Washington Law Review. 95 (1): 1.
Last edited on 4 May 2021, at 06:02
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