Antitrust Laws Protect the Public from Unfair Practices in Large Corporations
Antitrust laws were put in place by federal and state governments to regulate corporations. They keep companies from becoming too large and fixing prices, and also encourage competition so that consumers can receive quality products at reasonable prices. These laws give businesses an equal opportunity to compete for market share. Preventing monopolies ensures that consumer demand is met in a fair and balanced way. There are four sections that the laws focus on including agreements between competitors, contracts between buyers and sellers, mergers and monopolies.
Agreements between Competitors
To prevent price fixing, the government limits contracts between two competitors who are selling the same product in antitrust laws. Companies are also not allowed to rig a bid so that a certain group of bidders are already determined to win the bid before the bidding process begins. Another aspect of business that falls under this is geographic market allocation. This means that competitors cannot agree not to encroach on each other's territory and sell their products. This prevents the company from having a monopoly on the market in that area.
Contracts between Buyers and Sellers
The U.S. antitrust laws also protect buyers. There are minimum levels of production quality that are required and consumers must be aware of certain details regarding a product or service. This includes the cost or any warranty. Consumers may also not be misled with false advertising claims. The U.S. Federal Trade Commission (FTC) and the U.S. Department of Justice Antitrust Division are responsible for enforcing these laws and overseeing corporate trade practices.
Preventing Monopoly Powers
Even if a company does not enter into contracts with competitors to limit trade, they may still be able form a monopoly if they offer a unique product that has no competition. Some companies also have unreasonable exclusionary practices that create a monopoly. A company with large cash reserves can dictate the price of their products and they may use predatory pricing to stifle competition and force them out of business. Then the company no longer has an incentive to improve their product.
Restrictions on Mergers
The largest issue that antitrust laws deal with however is the formation of mergers. Mergers normally create a company that is designed to operate more efficiently. However some mergers reduce competition in the marketplace leading to higher priced products, fewer goods and services, lower quality products or less technological innovation. Mergers and acquisitions that significantly lower competition tend to create monopolies. If there is a question of whether a merger will damage consumers, it is investigated by the FTC.
These laws encourage businesses to compete fairly. They promote market competition to provide consumers with the best products possible at reasonable prices. Preventing corporations from anti-competitive behavior leads to more healthy economic growth and prevents stagnant markets. By having set rules that make certain practices illegal, the government can regulate businesses. With more vigorous competition it is believed that consumers will benefit from lower pricing, better products and services, more choices and increased innovation.