For more than a century, the antitrust laws have been instrumental in regulating business in the United States. First enacted in 1890, the antitrust legislation has over the years been used as a reference by federal and state agencies to promote free enterprise in the US market. More specifically, the law encourages fair competition among the various market players while ensuring that such competition does not generate harmful effects to the consumers. This is actualized through the provision of strong incentives for businesses to operate efficiently for the benefit of consumers (Cavanagh, 2013). As a result, scenarios where few firms collude to fix prices, divide the market for individual gain or otherwise conspire to restrict trade have been significantly minimized thereby alleviating economic problems that afflict the public.
The antitrust legislation was motivated by the notion that excessive concentration of commercial power amongst business institutions undermines the ability of the market to deliver affordable prices, offer quality goods and services as well as provide more choices to consumers (Cavanagh, 2013).As such, the law sought to instill honest practices in the economy by reducing adverse consequences of oligopolistic and monopolistic market structures. A monopolistic market consists of a larger seller who solely enjoys the benefit of supplying goods and services to consumers in a given market whereas an oligopolistic market consists of few large firms that dominate the market in so far as the provision of goods and services is concerned (Mankiw, Taylor, & Ashwin, 2016).In this regard, the antitrust law aims at eliminating instances where the discretion of few players in the economy determine the welfare of the majority (Cavanagh, 2013).However, the Federal Trade Commission(2017) notes that the antitrust law aims at taming harmful actions of dominant market players rather than regulating the market.
Over the years, economic and social welfare scholars have demonstrated that oligopolistic and monopolistic market structures have adverse effects on consumers. For example, pricing intrigues and market share struggles have not only been proved as exploitative to the consumers but also show the tendency to diminish the quality of goods and services offered in the market (Cavanagh, 2013).When business institutions price their goods and services in such a way that only seeks to increase profits, the lives of consumers, especially from low-income groups, become economically strained thereby enhancing poverty and deprivation (Mankiw, Taylor, & Ashwin, 2016).This has a negative implication on income inequalities. Income inequality has been (and still is) a persistent problem in American society.
Another economic problem that unregulated monopolistic and oligopolistic market structures tend to create is corruption. This is perpetrated in the form of kickbacks and bid-rigging especially in the procurement of public goods and services. Bid-rigging occurs when a group of competitors come together and agree on how to differentiate their bids in regards to a given contract with the sole intention of ensuring that a predetermined member of the group wins the contract. Whoever wins often subcontracts or otherwise compensates the rest of the members of the group for their support in securing the contract (UNACTAD, 2014; Federal Trade Commission, 2017). This way, the public loses revenue as a result of inflated contract costs which may eventually increase the cost of goods and services.
How the Antitrust Law Addresses Economic Problems
Evidence abounds on the role antitrust laws can play in reducing corruption in both public and private sectors. An inverse relationship exists between corruption and market competitiveness. In other words, highly competitive markets tend to drive out corruption whereas markets with natural barriers allow corruption to thrive (Troesken, 2009). According to Troesken, a company that deals with whiskey distilling is more likely to face fewer situations of corruption compared to those that deal in oil or heavy machinery such as aircraft and vehicles. To address this problem, antitrust laws instill competitiveness which is an integral component of discouraging corruption. For instance, antitrust laws require that public procurement is conducted in a competitive and transparent manner. These competition restrictions ensure that bid-rigging does not occur thereby saving the amount of the taxpayers money that is used to acquire public goods and services (UNACTAD, 2014).
Antitrust laws have also been pivotal in reducing cases of American corporations giving employees or agents of other business entities bribes so as to secure contracts both domestically and in the international market. For instance, the Sherman Act criminalizes bribery relating to domestic commerce and American export businesses (Cavanagh, 2013). As such, the law seals loopholes that motivate firms to suppress competition. For instance, the antitrust law bans payments to business entities which are categorized as unreasonable and unjustified in line with the major area of concentration of the corporations that are making such payments (Federal Trade Commission, 2017).In view of this, the Robinson-Patman Act prevents payment of brokerage fees, commissions and any other compensation in relation to the sale goods except for payments made for the services of which the selling firm renders to the recipient business institutions (Goodman, 2013).According to Federal Trade Commission(2017), this Act was meant to discourage situations where large players conspire to suppress competition through inducement of buyers.
In an environment of stiff competition such as the United States, antitrust laws come in handy to discourage exploitation of consumers. Under the mentioned economic circumstances, large firms use their power to increase prices, lower wages, limit choices for consumers and hold back competition from SMEs and start-ups (Goodman, 2013; Cavanagh, 2013).These intrigues often promote unfair practices which, in turn, undermine competitiveness of the market. As a remedy to these business practices, the antitrust laws outline conditions within which firms may expand in size as a strategy of increasing their market share. For example, the Federal Trade Commission (2017) indicates that mergers are areas where regulatory agencies pay a keen interest to control the effects of mergers of direct competitors. Before mergers take place, post-merger market share, potential barriers to entry, post-merger market concentration, and product differentiation analysis are done to identify the possible effects of such mergers on pricing, wages and consumer choices (UNACTAD, 2014).By so doing, market regulators discourage business practices that are harmful to the consumers. In point, antitrust laws improve the quality of goods and services since consumers have a variety from which they make their consumption choices (Federal Trade Commission, 2017). This way, issues of exploitation of consumers are significantly minimized.
Antitrust laws restrict firms from abusing their market power. Notably, dominant firms may abuse market power by bundling of goods or refusing to supply goods (UNACTAD, 2014).On competition, dominant companies such as manufacturers may decide to reduce prices in particular geographical areas which can cause harm to small competitors in the same market especially if such behaviors are done for a long time (Federal Trade Commission, 2017).The Robinson-Patman Act seeks to address such issues. Federal Trade Commission, for example, notes that the Act prohibits certain price discrimination practices in selected geographical areas as a measure of protecting unfair competition from dominant market players. To this end, small businesses get protection which, in turn, sustains business activities of SMEs and start-ups. Such environment is critical for sustainable employment opportunities and higher wages in the economy.
Socioeconomic inequality is also one of the economic problems that antitrust laws have managed to address. The existence of market power affects income distribution. Such position enables business owners to generate more profits through the imposition of higher prices on consumers (UNACTAD, 2014; Cavanagh, 2013).The desire for increased profit margins harms the poor who pay more for inflated value of goods which often results in deprivation. A deprived population may fail to meet basic needs on a daily basis due to reduced disposable incomes (OECD, 2017).Antitrust laws deal with this issue through the regulation of the conduct of large firms. This is provided by the Sherman Act which prohibits attempts to suppress competition or charge prohibitive prices that further strain the incomes of the poor(Cavanagh, 2013; Federal Trade Commission, 2017). Prevention of harmful pricing practices means that a majority of low-income groups can afford basic goods and services. As a result, upward mobility is encouraged, giving these individuals the opportunity to disentangle themselves from poverty.
Antitrust laws play a critical role in regulating the operations of markets. Although the market contains limitations that prevent effective implementation of antitrust laws, their application over the years has reduced exploitation of consumers from rogue business owners. An area that these laws have shown results is the limitation of powers of firms on both oligopolistic and monopolistic structures from setting prohibitive prices for their goods and services. Additionally, antitrust laws have reduced instances of bribery in business dealings. Moreover, these laws have minimized income inequalities and encouraged upward mobility low-income earners. Despite these positive results, evidence from the discussion suggests that antitrust laws focus more on the customer rather market efficiencies. For this reason, a balance is required to yield the best out of antitrust laws in regards to the overall performance of the economy.
Cavanagh, E. D. (2013). Antitrust law and economic theory: Finding a balance. Loyola University Chicago Journal, 123-171.
Federal Trade Commission. (2017). Antitrust Laws. Retrieved from https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/
Goodman, J. (2013). The anti-corruption and antitrust connection. American Bar Association. Retrieved from https://www.americanbar.org/dam/aba/publishing/antitrust_source/apr13_goodman.authcheckdam.pdf
Mankiw, N. G., Taylor, M. P., & Ashwin, A. (2016). Business Economics.
Organization for Economic Cooperation and Development. (2017). Inequality: a hidden cost of market power (2015/10). Retrieved from http://www.oecd.org/officialdocuments/publicdisplaydocumentpdf/?cote=DAF/COMP(2015)10&docLanguage=En
Troesken, W. (2009). Competition and Corruption: Lessons from 150 years of industrial governance. George Mason University.
United Nations Conference on Trade and Development. (2014). The benefit of competition policy for consumers. Retrieved from http://unctad.org/meetings/en/SessionalDocuments/ciclpd27_en.pdf
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