Abstract Antitrust laws work towards preventing the emergence of monopolies and cartels and hence, ensure that competition is maintained at levels sufficient enough to maximize the welfare of consumers through low prices and high-quality products. What benefits do antitrust laws yield to an economy? What is the relevance of maintaining sufficient competition? How effective are antitrust laws in achieving their intended objectives? This text provides answers to these questions.
Antitrust Laws: Benefits, Importance, And Effectiveness
Standard economic theory holds that sufficient competition is a vital ingredient for the effective functioning of markets, without which unscrupulous players would be better placed to not only obtain monopoly power, but also impede on allocative efficiency by setting prices in their favor (Updegrove, 2007). In order to prevent this and ensure the maintenance of sufficient competition, governments enact antitrust and competition laws and put in place special institutions to oversee the enforcement of the same (Updegrove, 2007). Antitrust laws, therefore, seek to foster sufficient competition within markets by preventing the emergence of cartels and monopolies. However, in spite of this theoretic economic rationale, there still is a fierce debate about the effectiveness and practicability of antitrust laws.
Benefits of Competition
Competition fosters efficiency because it drives service providers to not only venture, but to also initiate and innovate, so as to respond better to the needs and expectations of customers, and hence maintain market share (Baer, 2013). Service providers, to this end, strive to allocate production resources in a way that minimizes costs while maximizing welfare, since rational consumers would always expect a provider to offer high-quality products at the lowest possible costs. In this way, resources are optimally-allocated both at the firm and industry levels (Baer, 2013).
The second benefit of competition is that it weeds out the slow, the incompetent, and the failures, leaving the innovative, dynamic and the fast-to-respond to run the market (Baer, 2013). This 'economic selection' benefits the economy, in its entirety; to consumers, it ensures that they get access to the very best in terms of product quality and timely service delivery; and to producers, it drives self-improvement and pushes an enterprise to modernize its strategies as well as production processes to be at par with market standards (Baer, 2013).
Competition is the reason why consumers today are in a position to purchase electronic equipment such as PCs at almost half the amount it would have cost them seven years ago. New PC producers enter the global market on an almost daily basis and competition increases on an almost proportionate scale. Having seen the role played by competition in today's marketplace, it would be prudent to outline some of the benefits of antitrust laws, upon which the concept of sufficient competition draws its framework.
Importance of Antitrust and Competition Laws
The overriding objective of antitrust laws is to ensure that consumers have access to the highest quality of products at the lowest possible price (Baer, 2013). The most significant antitrust laws in the U.S. include the Sherman Act of 1890, the Clayton Act of 1914, the Wilson Tariff Act, the National Cooperative Research and Production Act of 1993, the Celler-Kafauver Anti-merger Act, and the Robinson-Patman Antidiscrimination Act of 1936 (Updegrove, 2007).
Antitrust laws create favorable business environments, making it possible for any prospective investor to venture into the market and set the prices for their products depending on their individual business standards (Updegrove, 2007). In the absence of antitrust laws, well-established entities would come together and form cartels or mergers, making it difficult for potential entrants to venture into the market. The Antitrust Division rejected AT&T's proposal to acquire T-Mobile, holding "that eliminating a significant competitor from an already concentrated market would fundamentally alter the national competitive dynamic" (Baer, 2013, p. 2).
Additionally, antitrust laws facilitate government control. They make it possible for the government to monitor market competition, and put in place measures of improving the same, because in as much as competition is crucial to the efficient operation of the market, unhealthy competition scares investors away, and if left unchecked, could cause a country or region to remain largely underdeveloped (Updegrove, 2007). Moreover, competition ought to be checked to prevent deflation. If the government, for instance, wishes to improve competition levels within a particular sector, it could do so by deregulating that particular sector (Updegrove, 2007). This would make room for more investors to venture into the deregulated sector, creating more friction and pitting producers both against each other and against consumers, such that producers strive to satisfy the needs of their customers in the best possible way - failure to which they would switch to competitors, given that the products are homogenous, and the switching costs relatively low.
The Ineffectiveness of Antitrust Laws
The UK Euro Info Center (2013) expresses that, today, there is no significant difference between the development systems in the UK, which has had antitrust law since the end of World War II, and countries such as France, Belgium, the Netherlands, and Germany, which have never bothered to implement, or even enact the same. For this reason, antitrust laws must be ineffective. In the author's words, one cannot "drop a few stones in the river and stop the full force of the Mississippi" (UK Euro Center, 2013).
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