Updated: Oct 8, 2020
It refers to the business practices followed by a firm or a group of firms in order to restrict the inter-firm competition to maintain or increase their relative market position and profits without necessarily providing goods and services at lower cost or of higher quality. The essence of competition entails attempts by firm(s) to gain advantage over rivals. However, the boundary of acceptable business practices may be crossed if firms contrive to artificially limit competition by not building so much on their advantages but on exploiting their market position to the disadvantage or detriment of competitors, customers and suppliers such that higher prices, reduced output, less consumer choice, loss of economic efficiency and misallocation of resources (or combinations thereof) are likely to result.
Which types of business practices are likely to be construed as being anti competitive and, if that, as violating competition law, will vary by jurisdiction and on a case by case basis. Certain practices may be viewed as per se illegal while others may be subject to rule of reason. Resale price maintenance, for example, is viewed in most jurisdictions as being per se illegal whereas exclusive dealing may be subject to rule of reason. The standards for determining whether or not a business practice is illegal may also differ. In the United States, price fixing agreements are per se illegal whereas in Canada the agreement must cover a substantial part of the market. With these caveats in mind, competition laws in a large number of countries examine and generally seek to prevent a wide range of business practices which restrict competition.
Types of Anti-competitive Activities
1. Monopoly - A pure monopoly is a single supplier in a market. For the purposes of regulation, monopoly power exists when a single firm controls 25% or more of a particular market.
If a firm has exclusive ownership of a scarce resource, such as Microsoft owning the Windows operating system brand, it has monopoly power over this resource and is the only firm that can exploit it.
They can benefit from economies of scale, and may be ‘natural’ monopolies, so it may be argued that it is best for them to remain monopolies to avoid the wasteful duplication of infrastructure that would happen if new firms were encouraged to build their own infrastructure.
2. Oligopoly- The Oligopoly Market characterized by few sellers, selling the homogeneous or differentiated products. In other words, the Oligopoly market structure lies between the pure monopoly and monopolistic competition, where few sellers dominate the market and have control over the price of the product.
Also, as there are few sellers in the market, every seller influences the behavior of the other firms and other firms influence it.
Oligopoly is either perfect or imperfect/differentiated. In India, some examples of an oligopolistic market are automobiles, cement, steel, aluminum, etc.
3. Cartel- A cartel is a collaboration between two or more companies who attempt to manipulate the prices of goods or services. The cartel forms because the companies are hoping to work together to control the market. We often see a cartel develop when there are a small number of companies who offer the product and each company often owns a large share of the good, such as with oil or gold. Through this collaboration, the companies who form the cartel are able to control prices by taking various measures to drive up the cost of goods or services.
Cartel is one such collusive engagement. It is an informal association among the firms. Under cartel, the firms agree sometimes about the total output to be produced by each firm, the price charged by the firms or sharing of markets. In this way they avoid competition, reduce costs and perhaps get more profits.
4. Dumping- Dumping is when a country's businesses lower the sales price of their exports to unfairly gain market share. They drop the product's price below what it would sell for at home. They may even push the price below the actual cost to produce. They raise the price once they've destroyed the other nation's competition.
The main advantage of dumping is selling at an unfairly competitive lower price. A country subsidizes the exporting businesses to enable them to sell below cost. The nation's leaders want to increase market share in that industry. It may want to create jobs for its residents. It often uses dumping as an attack on its trading partner's industry. It hopes to put that country's producers out of business and become the industry leader.
- LEGAL HUMMING
(CO-AUTHOR LAIBA ARSHAD)