Anti-competitive practices

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Anti-competitive practices are business or government practices that prevent or reduce competition in a market. Antitrust 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 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.


Anticompetitive 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 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-distributor relationships. These practices include exclusive dealing, refusal to deal/sell, resale price maintenance and more.


Also criticized are:

Horizontal mergers

Horizontal merger refers to improving efficiency by reducing consumer distortion of firm choice and price heterogeneity. When two companies with similar products or product characteristics merge horizontally, there is less competition. However, a net social benefit can be created, because when the two companies fight a continuous price war due to fierce competition, it will strongly distort the choices of consumers. [13] Horizontal mergers can also easily lead to a monopoly, reducing consumers' choices and indirectly harming consumers' interests.

Vertical mergers

The Chicago school of economics argues that vertical mergers, usually formed under anti-competitive intention, may be pro-competitive to eliminate double marginalisation. [14] 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.


"I Like a Little Competition"--J. P. Morgan by Art Young. Cartoon relating to the answer J. P. Morgan gave when asked whether he disliked competition at the Pujo Committee. I Like a Little Competition.jpg
"I Like a Little Competition"—J. P. Morgan by Art Young. Cartoon relating to the answer J. P. Morgan gave when asked whether he disliked competition at the Pujo Committee.

Monopolies and oligopolies 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. [16] 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.

Reduce competition: Anticompetitive practices lead to less competition in the marketplace, which leads to limited choice for consumers, higher prices, and less innovation. When firms engage in anticompetitive practices that eliminate or reduce competitors, such as collusion, abuse of market power, or mergers and acquisitions, it may result in reduced competition and discourage new competitors from entering the market. This can lead to higher prices, lower product or service quality and less incentive to innovate.

Distorted market dynamics: Anticompetitive behaviour distorts market dynamics and undermines the level playing field for all market participants. When some companies engage in unfair or anti-competitive practices, it can create an uneven playing field that puts small businesses or new entrants at a disadvantage and leads to market distortions, reduced competition and potentially harmful consequences for consumers and the economy.

To mitigate the negative effects of anti-competitive behaviour, effective competition laws and regulatory mechanisms are needed to promote fair competition, protect consumer interests and maintain a level playing field for all market participants. Enforcement of competition law, promotion of competition and fostering a culture of competition in the business environment help to ensure that markets are competitive, innovative and beneficial to consumers and the economy as a whole.

Common actions

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:

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.

Anti-competitive practices in different market systems

Based on the research from Long in 2018, it observed that, the Anti-competitive is not only an industry regulation behavior, but also a modern industry characteristics for stakeholders to compete in within an fair market system. Meanwhile, the research results also significantly involved the economic theories to predict the relevant encouragement. This article explained the relevant variables in determining the extent of anti-competitive markets too. While in perfectly competitive market, the anti-competitive practices is not necessary, since each business already have full information on their competitors pricing, strategy and major actions. While, in the monopolist market system, the anti-competitive practices will become a  significantly useful method to reduce the manipulation of business giants and potential colluding actions. Furthermore, the research emphasized the market conduct of state monopolies is no different from that of other firms and market power serves as the motivation for anti-competitive behaviour of firms.

The effectiveness of anti-competitive practices in national stabilization

Meanwhile, in description of the economic approach, the anti-competitive practices is also a useful approach to sustain a stabilized economic development and national welfare. With the implementation of anti-competitive practices, it will effectively remove the market inefficiencies and eliminate the dead weight loss from the economic viewpoint. As firms engage in the fair competition act with the government regulations and laws. There is sufficient evidence to conclude that, the utilization of anti-competitive practices can dramatically reduce the phenomenon of black market, hence improves the investment incentives on aggregate demands. In general, with the effective implementation of anti-competitive practices, the whole economy will expand into a further prosperity with less crowing out effects.

See also

Related Research Articles

A monopoly, as described by Irving Fisher, is a market with the "absence of competition", creating a situation where a specific person or enterprise is the only supplier of a particular thing. This contrasts with a monopsony which relates to a single entity's control of a market to purchase a good or service, and with oligopoly and duopoly which consists of a few sellers dominating a market. Monopolies are thus characterised by a lack of economic competition to produce the good or service, 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 a decrease in social surplus. 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.

In economics, imperfect competition refers to a situation where the characteristics of an economic market do not fulfil all the necessary conditions of a perfectly competitive market. Imperfect competition causes market inefficiencies, resulting in market failure. Imperfect competition usually describes behaviour of suppliers in a market, such that the level of competition between sellers is below the level of competition in perfectly competitive market conditions.

<span class="mw-page-title-main">Sherman Antitrust Act</span> 1890 U.S. anti-monopoly law

The Sherman Antitrust Act of 1890 is a United States antitrust law which prescribes the rule of free competition among those engaged in commerce. It was passed by Congress and is named for Senator John Sherman, its principal author.

<span class="mw-page-title-main">Clayton Antitrust Act of 1914</span> US federal law

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. That regime started with the Sherman Antitrust Act of 1890, the first Federal law outlawing practices that were harmful to consumers. The Clayton Act specified particular prohibited conduct, the three-level enforcement scheme, the exemptions, and the remedial measures.

<span class="mw-page-title-main">United States antitrust law</span> American legal system intended to promote competition among businesses

In the United States, antitrust law is a collection of mostly federal laws that regulate the conduct and organization of businesses to promote 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.

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.

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 economics and business ethics, a coercive monopoly is a firm that is able to raise prices and make production decisions without the risk that competition will arise to draw away their customers. A coercive monopoly is not merely a sole supplier of a particular kind of good or service : It is a monopoly wherein there is no opportunity to compete with it because entry into the field is legally closed. It is a case of a non-contestable market. A coercive monopoly has few or no incentives to keep prices low and may deliberately price gouge consumers by curtailing production. Furthermore, this highlights that the law of supply and demand is negligible, as those in control behave independently from the market and set arbitrary production policies for their personal benefit

<span class="mw-page-title-main">European Union competition law</span> Economic law of the European Union

European Union competition law is the competition law in use within the European Union. It 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. To make it simple, companies with strong market power can decide whether higher the price above competition levels or lower their quality produced but no need to worry about losing any customers, the strong market power for a company prevents they are involving competition. 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'.

<span class="mw-page-title-main">Non-price competition</span>

Non-price competition is a marketing strategy "in which one firm tries to distinguish its product or service from competing products on the basis of attributes like design and workmanship". It often occurs in imperfectly competitive markets because it exists between two or more producers that sell goods and services at the same prices but compete to increase their respective market shares through non-price measures such as marketing schemes and greater quality. It is a form of competition that requires firms to focus on product differentiation instead of pricing strategies among competitors. Such differentiation measures allowing for firms to distinguish themselves, and their products from competitors, may include, offering superb quality of service, extensive distribution, customer focus, or any sustainable competitive advantage other than price. When price controls are not present, the set of competitive equilibria naturally correspond to the state of natural outcomes in Hatfield and Milgrom's two-sided matching with contracts model.

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.

<i>Competition and Consumer Act 2010</i> Act of the Parliament of Australia

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.

Merger control refers to the procedure of reviewing mergers and acquisitions under antitrust / competition law. Over 130 nations worldwide have adopted a regime providing for merger control. National or supernational competition agencies such as the EU European Commission or the US Federal Trade Commission are normally entrusted with the role of reviewing mergers.

In economics, market concentration is a function of the number of firms and their respective shares of the total production in a market.Market concentration is the portion of a given market's market share that is held by a small number of businesses. To ascertain whether an industry is competitive or not, it is employed in antitrust law and economic regulation. When market concentration is high, it indicates that a few firms dominate the market and oligopoly or monopolistic competition is likely to exist. In most cases, high market concentration produces undesirable consequences such as reduced competition and higher prices.

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.

European Union merger law is a part of the law of the European Union. It is charged with regulating mergers between two or more entities in a corporate structure. This institution has jurisdiction over concentrations that might or might not impede competition. Although mergers must comply with policies and regulations set by the commission; certain mergers are exempt if they promote consumer welfare. Mergers that fail to comply with the common market may be blocked. It is part of competition law and is designed to ensure that firms do not acquire such a degree of market power on the free market so as to harm the interests of consumers, the economy and society as a whole. Specifically, the level of control may lead to higher prices, less innovation and production.

Software monetization is a strategy employed by software companies and device vendors to maximize the profitability of their software. The software licensing component of this strategy enables software companies and device vendors to simultaneously protect their applications and embedded software from unauthorized copying, distribution, and use, and capture new revenue streams through creative pricing and packaging models. Whether a software application is hosted in the cloud, embedded in hardware, or installed on premises, software monetization solutions can help businesses extract the most value from their software. Another way to achieve software monetization is through paid advertising and the various compensation methods available to software publishers. Pay-per-install (PPI), for example, generates revenue by bundling third-party applications, also known as adware, with either freeware or shareware applications.


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