In order to promote a fair level of competition in the market, the United States has implemented a set of antitrust laws to regulate the size of businesses. The primary laws that establish antitrust regulation are the Sherman Act, Federal Trade Commission Act, and Clayton Act. The impact of antitrust legislation on the economy is hotly debated. On one hand, stakeholders believe that such laws interfere with the natural business growth potential. On the contrary, critics of monopoly argue that antitrust legislation protects the operation of small businesses within the economy. The following paper will investigate the nature of corporate antitrust behaviors, identify economic costs associated with monopoly, and provide an example of antitrust helping the American economy.
America’s belief in capitalism is supported by the people’s belief in free market competition. The purpose of antitrust legislation is to promote competition in the marketplace. In response to the public sentiment that corporation had grown too large in the early 1900s antitrust laws were established to preserve competition and protect smaller businesses. According to Posner (1975) consumers paying inflated prices due to monopolization is a social cost and consequence to purely free markets. Establishing some regulation in the market is encouraged as it prevents growth to the point of creating undue social costs to consumers. The Sherman Act is the most important and powerful of the antitrust laws. The Act prohibits the unreasonable restraint on business that occurs when a business grows exceptionally large and powerful or two or more businesses conspire. The penalties imposed for the violation of antitrust laws under the Sherman Act are considered a felony. Employees, directors, and board members who violate the Act can face stiff fines and even prison sentences.
Multiple behaviors can violate antitrust laws. Price fixing stifles competition when two or more businesses conspire to establish prices. Price fixing is simply two or more businesses agreeing to a minimum, maximum, or range of prices. The economic impact on small businesses is detrimental if they cannot compete with larger businesses at a price point. This creates a business environment that prevents fair competition. Businesses can also conspire to boycott certain vendors to reduce their sales and drive them from the market. The group refusal to purchase from a specific entity is illegal. Businesses can also agree to not sell to a particular customer and that is illegal.
Microsoft was recently investigated for antitrust behavior. The Company was charged with becoming a monopoly that abused the limitations imposed by the Sherman Act. Microsoft allegedly engaged in product bundling by selling its operating system with its web browser software. The decision to bundle these products was said to end the competition in web browser sales. The charges against Microsoft stated that the bundling created an undue hardship on its competitors and drove them from the browser market. Microsoft responded by arguing that they were no intentions of monopolizing a market and its products were a result of innovation and fair market advertising and sales tactics.
Utilities companies are examples of monopolies that are positive. They provide a necessary service to the community. The Tennessee Valley Authority, for example, provides valuable electricity to consumers, but would not survive in a competitive environment as they could not attract enough capital. Utilities companies provide valuable services to households and should be considered good monopolies.
Antitrust laws work to protect the market and preserve competition. Competition is healthy, in that, it works as a force to set prices at a naturally fair level. The U.S. government has acted appropriately in establishing laws that regulate the market and provide the competition necessary to positive economics. While most monopolies are inherently over-powerful, some monopolies, such as utilities companies, should be considered as a social positive because they provide valuable services to consumers that otherwise would be difficult to supply.
- Posner, R. A. (1975). The Social Costs of Monopoly and Regulation. Journal of Political Economy, 83(4), 807.