Anti-competitive practices

Last updated February 02, 2025

Anti-competitive practices are business or government practices that prevent or reduce competition in a market. Antitrust laws 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 more choices for consumers. In order to obtain greater profits, some large enterprises take advantage of market power to hinder survival of new entrants. Anti-competitive behavior can undermine the efficiency and fairness of the market, leaving consumers with little choice to obtain a reasonable quality of service.

Anti-competitive behavior refers to actions taken by a business or organization to limit, restrict or eliminate competition in a market, usually in order to gain an unfair advantage or dominate the market. These practices are often considered illegal or unethical and can harm consumers, other businesses and the broader economy. Anti-competitive behavior is used by business and governments to lessen competition within the markets so that monopolies and dominant firms can generate supernormal profit margins 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 behavior they generally need to be a monopoly or a dominant firm in a duopoly or oligopoly who has significant influence over the market.

Types

Anti-competitive behavior can be grouped into two classifications. Horizontal restraints regard anti-competitive behavior 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-distributor relationships. These practices include exclusive dealing, refusal to deal/sell, resale price maintenance and more.

Horizontal integration

Horizontal integration can result in economies of scale, economies of density ^[1] and be anti-competitive. When two companies with similar products or product characteristics merge horizontally, there is less competition. Horizontal mergers can also easily lead to a monopoly, reducing consumers' choices and indirectly harming consumers' interests.

Vertical integration

Vertical integration can result in economies of scope and reduce the hold-up problem ^[2] and be anti-competitive. In absence of perfect competition Chicago school of economics argues vertical integration may be pro-competitive by reducing double marginalization.^[3]

Common anti-competitive actions

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 the ability to temporarily sacrifice selling a product or service at below average cost can drive competitors out of the market,^[4] 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.^[5]
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.^[6] 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.^[7]
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 and 2009.^[8]
Refusal to deal, e.g., two companies agree not to use a certain vendor. In 2010, Cabcharge refused, on commercial terms, to allow its non-cash payment instruments to be accepted and processed electronically by Travel Tab/Mpos' system for the payment of taxi fares. Travel Tab/Mpos requested access to the instruments but Cabcharge refused twice. Penalties for the first and second refusal were $2 million and $9 million respectively.^[9]
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.^[10] Boral and CSR formed a pre-mix concrete cartel and were penalized 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 recognize 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.^[11]
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.^[12] In 2006, Apple iTunes iPod lost a $10 million 10 year antitrust case when iPods were sold between September 2006 to March 2009 that were only compatible with tracks from the iTunes Store or those downloaded from CDs.^[13]
Resale price maintenance, when a manager sells to a distributor, the resale price is agreed to not fall below a specified minimum value. However, when the retail price decreases, the manufacturer does sell more products. This is interesting from a management perspective.^[14] This strategy is controversial, and the benefits are to protect some inefficient small stores or manufacturers from competition threats. But at the same time, this strategy can easily lead to the level price cartel of brand operators.
Natural monopoly: This type of monopoly occurs when a firm can efficiently supply the entire market due to economies of scale, where larger production leads to lower costs. For example, in some cases, utilities (such as those providing electricity or water) may operate as natural monopolies due to high infrastructure and distribution costs.
Technology monopoly: This type of monopoly occurs when one company has exclusive control over a particular technology or innovation, thus enabling them to dominate the market. For example, a company that owns a patent for a breakthrough technology may have a technology monopoly.
Legal loopholes: This type of monopoly occurs when the government grants a company exclusive rights or privileges to operate in a particular market. For example, patents and Copyrights provide temporary monopolies to inventors and creators to encourage innovation and creativity.

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.
Anti-competitive agreements: Firms may enter into agreements that limit competition, such as agreements to fix prices, limit production or supply, or divide markets. These agreements harm competition, reduce consumer choice and lead to higher prices or lower quality products or services.
Mergers and acquisitions that harm competition: Mergers and acquisitions that result in a significant reduction in market competition may be considered anti-competitive. This may include actions such as acquiring a competitor to eliminate or reduce competition, or merging to form a dominant market player who may engage in anti-competitive behavior.
Exclusive deals or tie-in arrangements: Companies may enter into exclusive deals or tie-in arrangements that require customers or suppliers to trade with them exclusively or purchase one product or service in order to obtain another. These practices can limit consumer choice and limit competition by preventing competitors from entering major distribution channels or markets.

Also criticized are:

Absorption of a competitor or competing technology, where a powerful firm effectively co-opts or swallows its competitor rather than let 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.
Occupational licensing ^[15]^[16]

Various unfair business practices such as fraud, misrepresentation, and unconscionable contracts may be considered unfair competition, if they give one competitor an advantage over others. In the European Union, each member state must regulate unfair business practices in accordance with the principles laid down in the Unfair Commercial Practices Directive, subject to transitional periods.

Related Research Articles

A monopoly is a market in which one person or company is the only supplier of a particular good or service. A monopoly is characterized by a lack of economic competition to produce a particular thing, a lack of viable substitute goods, and the possibility of a high monopoly price well above the seller's marginal cost that leads to a high monopoly profit. The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors. In economics, a monopoly is a single seller. In law, a monopoly is a business entity that has significant market power, that is, the power to charge overly high prices, which is associated with unfair price raises. Although monopolies may be big businesses, size is not a characteristic of a monopoly. A small business may still have the power to raise prices in a small industry.

An oligopoly is a market in which pricing control lies in the hands of a few sellers.

A cartel is a group of independent market participants who collude with each other as well as agreeing not to compete with each other in order to improve their profits and dominate the market. A cartel is an organization formed by producers to limit competition and increase prices by creating artificial shortages through low production quotas, stockpiling, and marketing quotas. Cartels can be vertical or horizontal but are inherently unstable due to the temptation to defect and falling prices for all members.

The Clayton Antitrust Act of 1914, is a part of United States antitrust law with the goal of adding further substance to the U.S. antitrust law regime; the Clayton Act seeks to prevent anticompetitive practices in their incipiency.

In the United States, antitrust law is a collection of mostly federal laws that govern the conduct and organization of businesses in order to promote economic competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. These acts serve three major functions. First, Section 1 of the Sherman Act prohibits price fixing and the operation of cartels, and prohibits other collusive practices that unreasonably restrain trade. Second, Section 7 of the Clayton Act restricts the mergers and acquisitions of organizations that may substantially lessen competition or tend to create a monopoly. Third, Section 2 of the Sherman Act prohibits monopolization.

Price fixing is an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand.

Collusion is a deceitful agreement or secret cooperation between two or more parties to limit open competition by deceiving, misleading or defrauding others of their legal right. Collusion is not always considered illegal. It can be used to attain objectives forbidden by law; for example, by defrauding or gaining an unfair market advantage. It is an agreement among firms or individuals to divide a market, set prices, limit production or limit opportunities. It can involve "unions, wage fixing, kickbacks, or misrepresenting the independence of the relationship between the colluding parties". In legal terms, all acts effected by collusion are considered void.

The Federal Trade Commission (FTC) is an independent agency of the United States government whose principal mission is the enforcement of civil (non-criminal) antitrust law and the promotion of consumer protection. The FTC shares jurisdiction over federal civil antitrust law enforcement with the Department of Justice Antitrust Division. The agency is headquartered in the Federal Trade Commission Building in Washington, DC.

In theories of competition in economics, a barrier to entry, or an economic barrier to entry, is a fixed cost that must be incurred by a new entrant, regardless of production or sales activities, into a market that incumbents do not have or have not had to incur. Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices and are therefore most important when discussing antitrust policy. Barriers to entry often cause or aid the existence of monopolies and oligopolies, or give companies market power. Barriers of entry also have an importance in industries. First of all it is important to identify that some exist naturally, such as brand loyalty. Governments can also create barriers to entry to meet consumer protection laws, protecting the public. In other cases it can also be due to inherent scarcity of public resources needed to enter a market.

In the European Union, competition law promotes the maintenance of competition within the European Single Market by regulating anti-competitive conduct by companies to ensure that they do not create cartels and monopolies that would damage the interests of society.

Predatory pricing is a commercial pricing strategy which involves the use of large scale undercutting to eliminate competition. This is where an industry dominant firm with sizable market power will deliberately reduce the prices of a product or service to loss-making levels to attract all consumers and create a monopoly. For a period of time, the prices are set unrealistically low to ensure competitors are unable to effectively compete with the dominant firm without making substantial loss. The aim is to force existing or potential competitors within the industry to abandon the market so that the dominant firm may establish a stronger market position and create further barriers to entry. Once competition has been driven from the market, consumers are forced into a monopolistic market where the dominant firm can safely increase prices to recoup its losses.

Competition law is the field of law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement. It is also known as antitrust law, anti-monopoly law, and trade practices law; the act of pushing for antitrust measures or attacking monopolistic companies is commonly known as trust busting.

In economics, market power refers to the ability of a firm to influence the price at which it sells a product or service by manipulating either the supply or demand of the product or service to increase economic profit. In other words, market power occurs if a firm does not face a perfectly elastic demand curve and can set its price (P) above marginal cost (MC) without losing revenue. This indicates that the magnitude of market power is associated with the gap between P and MC at a firm's profit maximising level of output. The size of the gap, which encapsulates the firm's level of market dominance, is determined by the residual demand curve's form. A steeper reverse demand indicates higher earnings and more dominance in the market. Such propensities contradict perfectly competitive markets, where market participants have no market power, P = MC and firms earn zero economic profit. Market participants in perfectly competitive markets are consequently referred to as 'price takers', whereas market participants that exhibit market power are referred to as 'price makers' or 'price setters'.

In Economics and Law, exclusive dealing arises when a supplier entails the buyer by placing limitations on the rights of the buyer to choose what, who and where they deal. This is against the law in most countries which include the USA, Australia and Europe when it has a significant impact of substantially lessening the competition in an industry. When the sales outlets are owned by the supplier, exclusive dealing is because of vertical integration, where the outlets are independent exclusive dealing is illegal due to the Restrictive Trade Practices Act, however, if it is registered and approved it is allowed. While primarily those agreements imposed by sellers are concerned with the comprehensive literature on exclusive dealing, some exclusive dealing arrangements are imposed by buyers instead of sellers.

The Competition and Consumer Act 2010 (CCA) is an Act of the Parliament of Australia. Prior to 1 January 2011, it was known as the Trade Practices Act 1974 (TPA). The Act is the legislative vehicle for competition law in Australia, and seeks to promote competition, fair trading as well as providing protection for consumers. It is administered by the Australian Competition & Consumer Commission (ACCC) and also gives some rights for private action. Schedule 2 of the CCA sets out the Australian Consumer Law (ACL). The Federal Court of Australia has the jurisdiction to determine private and public complaints made in regard to contraventions of the Act.

In United States antitrust law, monopolization is illegal monopoly behavior. The main categories of prohibited behavior include exclusive dealing, price discrimination, refusing to supply an essential facility, product tying and predatory pricing. Monopolization is a federal crime under Section 2 of the Sherman Antitrust Act of 1890. It has a specific legal meaning, which is parallel to the "abuse" of a dominant position in EU competition law, under TFEU article 102. It is also illegal in Australia under the Competition and Consumer Act 2010 (CCA). Section 2 of the Sherman Act states that any person "who shall monopolize. .. any part of the trade or commerce among the several states, or with foreign nations shall be deemed guilty of a felony." Section 2 also forbids "attempts to monopolize" and "conspiracies to monopolize". Generally this means that corporations may not act in ways that have been identified as contrary to precedent cases.

The Commerce Commission is a New Zealand government agency with responsibility for enforcing legislation that relates to competition in the country's markets, fair trading and consumer credit contracts, and regulatory responsibility for areas such as electricity and gas, telecommunications, dairy products and airports. It is an independent Crown entity established under the Commerce Act 1986. Although responsible to the Minister of Commerce and Consumer Affairs and the Minister of Broadcasting, Communications and Digital Media, the Commission is run independently from the government, and is intended to be an impartial promotor and enforcer of the law.

Competition law theory covers the strands of thought relating to competition law or antitrust policy.

United Kingdom competition law is affected by both British and European elements. The Competition Act 1998 and the Enterprise Act 2002 are the most important statutes for cases with a purely national dimension. However, prior to Brexit, if the effect of a business' conduct would reach across borders, the European Commission has competence to deal with the problems, and exclusively EU law would apply. Even so, the pre-Brexit section 60 of the Competition Act 1998 provides that UK rules are to be applied in line with European jurisprudence. Like all competition law, that in the UK has three main tasks.

ACCC v Cabcharge Australia Ltd is a 2010 decision of the Federal Court of Australia brought by the Australian Competition & Consumer Commission (ACCC) against Cabcharge. In June 2009, the ACCC began proceedings in the Federal Court against Cabcharge alleging that it had breached section 46 of the Commonwealth Trade Practices Act (TPA) by misusing its market power and entering into an agreement to substantially lessen competition. The action alleged predatory pricing by Cabcharge and centred on Cabcharge's conduct in refusing to deal with competing suppliers to allow Cabcharge payments to be processed through EFTPOS terminals provided by rival companies and supplying taxi meters and fare updates at below actual cost or at no cost.

References

↑ Ralph M, Braid (2017). "Efficiency-enhancing horizontal mergers in spatial competition". Papers in Regional Science. 96 (4): 881–895. Bibcode:2017PRegS..96..881B. doi: 10.1111/pirs.12228 .
↑ Holmström, B., & Roberts, J. (1998). The Boundaries of the Firm Revisited. The Journal of Economic Perspectives, 4(12), 73-94. JSTOR 2646895
↑ "Antitrust Regulators Release New Vertical Merger Guidelines". CRS Legal Sidebar: 1–3. 21 July 2020.
↑ Hemingway, Carole. "What is Predatory Pricing?". LegalVision. Archived from the original on 30 September 2020. Retrieved 18 October 2020.
↑ Windle, Charlotte (July 31, 2006). "China faces Indian dumping allegations". BBC News.
↑ "Exclusive Dealing". Australian Competition and Consumer Commission. ACCC. 9 January 2013. Retrieved 18 October 2020.
↑ "U.S. v. Dentsply International, Inc". The United States Department of Justice. 25 June 2015. Retrieved 19 October 2020.
↑ Pash, Chris (4 April 2018). "Flight Centre has been fined $12.5 million for 'price fixing'". Business Insider Australia. Archived from the original on 7 November 2020. Retrieved 18 October 2020.
↑ "ACCC v Cabcharge Australia Ltd". Australian Competition Law. AustFederal Court of Australiaralian Competition Law. Retrieved 22 October 2020.
↑ "Market sharing". Competition Commission (Hong Kong). Retrieved 22 October 2020.
↑ "Cartels case studies & legal cases: Queensland pre-mixed concrete cartel". Australian Competition and Consumer Commission. ACCC. 24 January 2013. Retrieved 23 October 2020.
↑ Shapiro, Daniel M; Khemani, R. S (1993). "Glossary of industrial organisation economics and competition law" (PDF). p. 83.
↑ Ware, James (22 December 2008). "Apple iPod iTunes Antitrust Litigation". United States District Court, N.D. California, San Jose Division. C 05-00037 JW. Retrieved 25 October 2020.
↑ Blair, Roger; Whitman, Joseph (2018). "Resale price maintenance: A managerial perspective". Managerial and Decision Economics. 39 (7): 751–760. doi:10.1002/mde.2920. JSTOR 26608277. S2CID 158821430.
↑ Katsuyama, Neil. "The economics of occupational licensing: Applying antitrust economics to distinguish between beneficial and anticompetitive professional licenses." S. Cal. Interdisc. LJ 19 (2009): 565.
↑ Gellhorn, Walter. "The abuse of occupational licensing." U. CHi. l. rev. 44 (1976): 6.

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[1] Ralph M, Braid (2017). "Efficiency-enhancing horizontal mergers in spatial competition". Papers in Regional Science. 96 (4): 881–895. Bibcode:2017PRegS..96..881B. doi: 10.1111/pirs.12228 .

[2] Holmström, B., & Roberts, J. (1998). The Boundaries of the Firm Revisited. The Journal of Economic Perspectives, 4(12), 73-94. JSTOR 2646895

[3] "Antitrust Regulators Release New Vertical Merger Guidelines". CRS Legal Sidebar: 1–3. 21 July 2020.

[4] Hemingway, Carole. "What is Predatory Pricing?". LegalVision. Archived from the original on 30 September 2020. Retrieved 18 October 2020.

[5] Windle, Charlotte (July 31, 2006). "China faces Indian dumping allegations". BBC News.

[6] "Exclusive Dealing". Australian Competition and Consumer Commission. ACCC. 9 January 2013. Retrieved 18 October 2020.

[7] "U.S. v. Dentsply International, Inc". The United States Department of Justice. 25 June 2015. Retrieved 19 October 2020.

[8] Pash, Chris (4 April 2018). "Flight Centre has been fined $12.5 million for 'price fixing'". Business Insider Australia. Archived from the original on 7 November 2020. Retrieved 18 October 2020.

[9] "ACCC v Cabcharge Australia Ltd". Australian Competition Law. AustFederal Court of Australiaralian Competition Law. Retrieved 22 October 2020.

[10] "Market sharing". Competition Commission (Hong Kong). Retrieved 22 October 2020.

[11] "Cartels case studies & legal cases: Queensland pre-mixed concrete cartel". Australian Competition and Consumer Commission. ACCC. 24 January 2013. Retrieved 23 October 2020.

[12] Shapiro, Daniel M; Khemani, R. S (1993). "Glossary of industrial organisation economics and competition law" (PDF). p. 83.

[13] Ware, James (22 December 2008). "Apple iPod iTunes Antitrust Litigation". United States District Court, N.D. California, San Jose Division. C 05-00037 JW. Retrieved 25 October 2020.

[14] Blair, Roger; Whitman, Joseph (2018). "Resale price maintenance: A managerial perspective". Managerial and Decision Economics. 39 (7): 751–760. doi:10.1002/mde.2920. JSTOR 26608277. S2CID 158821430.

[15] Katsuyama, Neil. "The economics of occupational licensing: Applying antitrust economics to distinguish between beneficial and anticompetitive professional licenses." S. Cal. Interdisc. LJ 19 (2009): 565.

[16] Gellhorn, Walter. "The abuse of occupational licensing." U. CHi. l. rev. 44 (1976): 6.

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