Understanding Antitrust And Their Importance
Competition isn’t only present to prove who or which is more superior. It also exists to provide balance, particularly in commerce. That is why governments decided to create laws to maintain that balance for consumers’ sake that is called antitrust laws.
Simply put, antitrust laws exist to assure that no single company or group of companies can obtain enough power to bend the free market. Having a business entity or entities that can monopolize the market puts consumers at a disadvantage. That’s because the market won’t be as competitive, resulting in limited access to supplies and goods and paying high prices due to the lack of competition.
Entrepreneurs and consumers need to understand that those laws are for the good of the many. It helps and protects every one of us since we’re all consumers. Learn more about it as this blog explains the importance of antitrust.
How antitrust laws work
Different governments enforce antitrust laws their way, but broadly speaking, these laws empower them to act against business entities abusing their market power and mergers that might result in too much corporate power. They exist to promote healthy competition among sellers and limit monopolies to give consumers more options to choose from. Therefore, anything governments deem as unfair methods of competition violate antitrust laws.
Once a designated government agency that enforces antitrust laws finds substantial evidence of any violations, they have the right to sue any business entity. They can file an antitrust lawsuit against any company that violates fair open-market competition to gain an unfair advantage over their competitors.
What is an antitrust lawsuit? It’s a class-action lawsuit used to stop practices that restrain trade and the free market and compensate those harmed by such deeds.
Types of antitrust violations
Governments can apply antitrust laws to a wide range of questionable business activities. Here are some of the abusive antitrust practices businesses do:
- Monopolies
Monopolies refer to the dominance of a company over an industry or sector while cutting out the competition. Examples of monopolistic behavior include exclusive supply agreements and refusal to deal.
Exclusive supply agreements occur when a supplier is prevented from selling to different buyers to block a monopolist’s competitor or competitors. It enables the monopolist to buy supplies at potentially lower prices, preventing their competitor from manufacturing similar products.
- Price fixing
Price fixing is the practice of setting product prices rather than being decided by the law of supply and demand. It’s a business’s way to force consumers to pay more than they’re willing to. In other forms, it can also be an agreement between competing businesses to refuse to pay more than a set amount for a product or service to avoid price competition.
- Bid rigging
Bid rigging is an illegal practice wherein two or more business entities manipulate bidding by choosing who will win it. It has three forms, namely, bid suppression, complementary bidding, and bid rotation.
Bid suppression is when a competitor refrains or withdraws from a bid so a designated winner can earn the contract. Complementary bidding happens when competitors collude to submit absurdly high bids or include special provisions in their bid that nullify other ones. Lastly, bid rotation is when competitors take turns being the lowest bidder on various contract specifications.
- Market allocation
Market allocation is a scheme usually devised by two business entities to keep their operations at specific geographic locations or types of customers.
Any business found guilty of these violations is subject to punishment by law. For example, tech giant Apple lost an appeal in 2013 when the U.S. Department of Justice found that they were fixing the price of ebooks. They were found liable and had to pay $450 million for damages.
Furthermore, mergers and acquisitions can also be antitrust violations once the government deems them to obtain too much power over free trade.
Concluding thoughts
Antitrust laws were established to maximize consumer welfare. Without them, commerce will struggle, and so will the consumers. Hence, they’re important to exercise consumer rights and essential to all industries and sectors to promote healthy competition.