Question about trusts (monopoly)

[Deleted member 159002]

Is anti-trust legislation necessary? Unless the government grants a firm monopoly privileges, isn't the only way a firm could gain monopoly status by offering the "best" products at the lowest prices? And if that's the case, why is there a need to break the firm?

 

[Zankou]

Antitrust law is a bitterly complicated subject. Generally speaking, there are two kinds of antitrust violations: per se (always unlawful) and rule of reason (unlawful under the circumstances, generally requiring "market power" aka what people call monopolies in the colloquial sense).

Per se violations are any business activity that is considered to be 'anticompetitive' without a useful procompetitive justification. It does NOT require market power. For example, price fixing between competitors is a classic per se antitrust violation. There is no monopoly, but there is a price fixing cabal that lacks any procompetitive justification.

Market power can be gained by innumerable ways, including intellectual property grants (patents etc), mergers (most obviously), sinister maneuvering against competitors (threatening to do x, y, z to them if they enter the market), or just creating a market through developing a new product. Those are not necessarily bad or illegal. Gaining a monopoly is perfectly legitimate in modern antitrust law. What is at issue is not so much whether you have a monopoly as whether you are engaged in an anticompetitive practice *and* have sufficient market power.

In modern antitrust law, very rarely are trusts "busted" apart in the old sense of forcibly dividing companies. Rather they are restrained from certain business activities, or prospective trusts are prevented from forming (such as by prospective merger scrutiny and approval regulation).

I hope this clarifies some of the background.

 

[Deleted member 159002]

Thanks, your reply definitely helped.

Antitrust law is a bitterly complicated subject. Generally speaking, there are two kinds of antitrust violations: per se (always unlawful) and rule of reason (unlawful under the circumstances, generally requiring "market power" aka what people call monopolies in the colloquial sense).

Per se violations are any business activity that is considered to be 'anticompetitive' without a useful procompetitive justification. It does NOT require market power. For example, price fixing between competitors is a classic per se antitrust violation. There is no monopoly, but there is a price fixing cabal that lacks any procompetitive justification.

Market power can be gained by innumerable ways, including intellectual property grants (patents etc), mergers (most obviously), sinister maneuvering against competitors (threatening to do x, y, z to them if they enter the market), or just creating a market through developing a new product. Those are not necessarily bad or illegal. Gaining a monopoly is perfectly legitimate in modern antitrust law. What is at issue is not so much whether you have a monopoly as whether you are engaged in an anticompetitive practice *and* have sufficient market power.

In modern antitrust law, very rarely are trusts "busted" apart in the old sense of forcibly dividing companies. Rather they are restrained from certain business activities, or prospective trusts are prevented from forming (such as by prospective merger scrutiny and approval regulation).

I hope this clarifies some of the background.

What are your thoughts on busting US Steel Corp, American Tobacco Company, and Standard Oil Co?

 

[Kevin Rudd]

The problem with monopolies is that they become so big and powerful that essentially they crush any potential entrants into their market. This can be done a few ways but the most common way is to drop prices for a sustained period and take a loss until your potential competitor goes bust.

They can also stifle innovation imo.

 

[Thames]

I don't know much about anti-trust laws in the U.S. But I can talk on behalf of the EU.

There are a lot of aspects to anti-trust laws. I guess it would be most fair to discuss each regulation separately. For example I think the exclusive dealer laws are total bullshit. Exclusive dealer laws basically means that it is illegal to make a contract stating that you will only use a specific company as supplier of a given product, for some given time.
This create some horrendous cases e.g. a case where a belgian couple who owned a bar, made a deal with a beer company who would install a beer tap for free and give discount on their beer, on the condition that only their beer could be sold on the tap. Then a third beer company who felt excluded, sued the couple and the beer company who installed the tap, the case was brought to EU, and the EU court of justice brought down the hammer with a huge fine.

Anti-trust laws are made in order to create a healthy and competitive market. But imo shit like the above does nothing else but hurt the market.

Then you have laws regulating price fixing, mergers, cartels, predatory pricing etc.
It's been some years since I have dealt with the subject. But during the time I did i reached the conclusion that ~80% of the laws were complete nonsense, when you looked at it with an economic lens.

You can probably find a lot of Friedman on the subject.
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The problem with monopolies is that they become so big and powerful that essentially they crush any potential entrants into their market. This can be done a few ways but the most common way is to drop prices for a sustained period and take a loss until your potential competitor goes bust.

They can also stifle innovation imo.

Yet this strategy of predatory pricing has never been observed with any concrete evidence behind it in reality. It's easy to see why. Try to think about how risky it would be to engage in it. There would have to be a high entry barrier to the market, otherwise it would be completely useless, that limits most markets. Then they would also need to have substantial financial reserves to keep it up. Complete insurance that no other competitor would jump in after they scare away the first one. Be ready for the much lower revenue stream. Ensure that the new competitor can't "tough it out" etc.
There really are a lot of things one could think of that could go horribly wrong with that tactic, and it's hard to see any scenario where a business would be so short sighted with their strategy in the face of competition.

 

[Zankou]

Thanks, your reply definitely helped.



What are your thoughts on busting US Steel Corp, American Tobacco Company, and Standard Oil Co?

Honestly I have no idea. I am moderately familiar with modern antitrust law ... in fact I recently worked on a case involving both of Harvard's antitrust law professors as expert witnesses ... but I have no understanding of its history or the economic issues involved in busting those particular companies.

Still, I do know that the modern approach to antitrust law is considered drastically different than what they did back in those days. Nowadays the emphasis is almost entirely on (1) analyzing market power, particularly the power to raise/lower prices; and (2) the economic effects by a particular market participant with that level of market power. Antitrust cases tend to revolve almost entirely around sophisticated economic modeling that looks at those issues.

There are still some old school 'per se anticompetitive' antitrust cases, but they are much rarer. And since all significant mergers are pre-approved by the gov't now, there isn't much ability to obtain market power except via intellectual property (which is inherently opposed to antitrust law, they are enemies).

 

[TheMMAn]

The problem with monopolies is that they become so big and powerful that essentially they crush any potential entrants into their market. This can be done a few ways but the most common way is to drop prices for a sustained period and take a loss until your potential competitor goes bust.

They can also stifle innovation imo.

As a customer, I would prefer this tactic

 

[Kevin Rudd]

Yet this strategy of predatory pricing has never been observed with any concrete evidence behind it in reality. It's easy to see why. Try to think about how risky it would be to engage in it. There would have to be a high entry barrier to the market, otherwise it would be completely useless, that limits most markets. Then they would also need to have substantial financial reserves to keep it up. Complete insurance that no other competitor would jump in after they scare away the first one. Be ready for the much lower revenue stream. Ensure that the new competitor can't "tough it out" etc.
There really are a lot of things one could think of that could go horribly wrong with that tactic, and it's hard to see any scenario where a business would be so short sighted with their strategy in the face of competition.

Difficult to prove in a court of law sure, but it certainly does happen. But no company in their right mind is going to document it as part of their stratregic direction as it is illegal:

http://www.theaustralian.com.au/bus...redatory-pricing/story-e6frg95x-1226044196417

http://www.smh.com.au/travel/travel-news/qantas-denies-predatory-pricing-slur-20091230-lj21.html

http://trove.nla.gov.au/work/103840544?q&versionId=117256203

 

[ben236]

Difficult to prove in a court of law sure, but it certainly does happen. But no company in their right mind is going to document it as part of their stratregic direction as it is illegal:

http://www.theaustralian.com.au/bus...redatory-pricing/story-e6frg95x-1226044196417

http://www.smh.com.au/travel/travel-news/qantas-denies-predatory-pricing-slur-20091230-lj21.html

http://trove.nla.gov.au/work/103840544?q&versionId=117256203

I don't think Thames was referring to the idea of undercutting your competition to gain market share and hopefully drive them out of business (that's just capitalism). It's the part where they intentionally take a loss to drive competitors out of business and "gouge" customers afterwards with these unreasonable and unaffordable prices as a result of their monopoly status. There really isn't any concrete evidence of this occurring.

 

[Kevin Rudd]

I don't think Thames was referring to the idea of undercutting your competition to gain market share and hopefully drive them out of business (that's just capitalism). It's the part where they intentionally take a loss to drive competitors out of business and "gouge" customers afterwards with these unreasonable and unaffordable prices as a result of their monopoly status. There really isn't any concrete evidence of this occurring.

Thames was referring to predatory pricing and asserted that is does not happen ever. I countered that point with those links. It has happened in the airline industry in my country, although it is incredibly difficult to prove legally.

I made no mention of gouging after removing competitors and neither did Thames. You're reaching for something that isn't there imo.

 

[ben236]

Thames was referring to predatory pricing and asserted that is does not happen ever. I countered that point with those links. It has happened in the airline industry in my country, although it is incredibly difficult to prove legally.

I made no mention of gouging after removing competitors and neither did Thames. You're reaching for something that isn't there imo.

So if there is no gouging after competitors are removed, what's the problem with it?

 

[Kevin Rudd]

So if there is no gouging after competitors are removed, what's the problem with it?

It is illegal in my country, your country and the US.

http://en.wikipedia.org/wiki/Predatory_pricing

 

[Thames]

Thames was referring to predatory pricing and asserted that is does not happen ever. I countered that point with those links. It has happened in the airline industry in my country, although it is incredibly difficult to prove legally.

I made no mention of gouging after removing competitors and neither did Thames. You're reaching for something that isn't there imo.

You didn't counter my point.
I said there hasn't been any cases where there was concrete evidence of predatory pricing happening in reality. Your links just has some articles of companies being accused of it. Then you say that it does happen. That doesn't counter my point at all.

Why is it so hard to prove legally you think? Because the courts are dumb? And no, you don't need a written statement saying "We are going to engage in predatory pricing" before you can convict someone.
There has been some cases where a company was in fact fined for predatory pricing e.g. Amazon in France, but all those cases have been very controversial.

 

[JuliaB4GSP]

I hope Comcast-Time Warner Cable merger gets rejected. I have no decent choice for broadband outside of TWC, can't imagine things will get better for the people whose only choice is Comcast. Hopefully it will be blocked same as ATT T-Mobile a few years back.

 

[IDL]

The problem with monopolies is that they become so big and powerful that essentially they crush any potential entrants into their market. This can be done a few ways but the most common way is to drop prices for a sustained period and take a loss until your potential competitor goes bust.

They can also stifle innovation imo.

Governments can actually work with corporations to do this for geopolitical advantage as well.

China for example can subsidize some industries to dump cheap goods on the world market destroying competition. They can also buy up companies around the world in attempt to gain monopoly.

The US is largely accused of doing this with farming subsidies as well, and are usually backing Monsanto and other GMO corps. I wouldn't be surprised if this is heavily used in many industries