Anti-competitive behaviour
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Anti-competitive practices are business practices that prevent and/or reduce competition in a market.
Anti-competitive practices include:
- Dumping, where products are sold into a market at a low price which renders competition impossible, in order to wipe out competitors.
- Exclusive dealing, where a retailer or wholesaler is ‘tied’ to purchase from a supplier.
- Barriers to entry (to an industry) designed to avoid the competition that new entrants would bring.
- Price fixing, where companies collude to set prices, effectively dismantling the free market.
- Limit Pricing, where the price is set by a monopolist to discourage economic entry into a market.
- Tying, where different products are linked together to prevent consumer choice.
- Resale price maintenance, where resellers are not allowed to set prices independently.
- 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.
It is usually difficult to practice anti-competitive practices unless the parties involved have significant market power.
Monopolies and oligopolies are often accused of, and sometimes found guilty of, anti-competitive practices. 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.
Some people 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.
Many advocates of laissez-faire capitalism, such as the Austrian school hold that the term "anticompetitive behavior" is a misnomer used to justify irrational intrusions by government into the free market. These say that what the term describes is, in actuality, competitive behavior that, for the benefit of consumers, should be left unhindered by coercive government regulation.
Related Material
- cartel
- antitrust law
- predatory pricing
- microeconomics
- Oligopoly
- price discrimination
- Natural monopoly
- secret rebate
- loss leader
- Austrian school