Anti-competitive practices

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Competition law

Basic concepts

 History of competition law

 Monopoly and oligopoly
o Coercive monopoly

o Natural monopoly

 Barriers to entry

 Herfindahl–Hirschman Index

 Market concentration

 Market power

 SSNIP test

 Relevant market
 Merger control

Anti-competitive practices
 Monopolization

 Collusion
o Formation of cartels

o Price fixing

o Bid rigging

o Tacit collusion

 Product bundling and tying

 Refusal to deal
o Group boycott

o Essential facilities

 Exclusive dealing
  Dividing territories

 Predatory pricing

 Misuse of patents and copyrights

Enforcement authorities and organizations

 International Competition Network

 List of competition regulators

 v
 t
 e

Anti-competitive practices are business or government practices that unlawfully prevent or

reduce competition in a market.[1] 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.[2]
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.

Contents

 1Types

o 1.1Vertical mergers

 2Effects

 3Common actions

 4See also

 5References
  6External links

Types[edit]
 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,
[3]
 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.[3]
 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.[4] 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.[5]
 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 [6]
 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.[7]
 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.[8] 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. [9]
 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.[10] 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. [11]
Also criticized are:

 Absorption of a competitor or competing technology, where the powerful firm

effectively co-opts or swallows its competitor rather than see 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.
Vertical mergers[edit]
The Chicago school of economics argues that vertical mergers, usually formed under anti-
competitive intention, may be pro-competitive to eliminate double marginalisation.[12] 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.

Effects[edit]

"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.[13]
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".
[14]
 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."[15] The business practices and political power of the billionaires of
Silicon Valley has also led to their identification as robber barons. [16][17]
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. [18] 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.