Anti-competitive practices are business or government practices that prevent or reduce competition in a market. Antitrust laws ensure businesses do not engage in competitive practices that harm other, usually smaller, businesses or consumers. These laws are formed to promote healthy competition within a free market by limiting the abuse of monopoly power. Competition allows companies to compete in order for products and services to improve, promote innovation, and provide more choices for consumers. In order to obtain greater profits, some large enterprises take advantage of market power to hinder survival of new entrants. Anti-competitive behavior can undermine the efficiency and fairness of the market, leaving consumers with little choice to obtain a reasonable quality of service.
Anti-competitive behavior refers to actions taken by a business or organization to limit, restrict or eliminate competition in a market, usually in order to gain an unfair advantage or dominate the market. These practices are often considered illegal or unethical and can harm consumers, other businesses and the broader economy. Anti-competitive behavior is used by business and governments to lessen competition within the markets so that monopolies and dominant firms can generate supernormal profit margins and deter competitors from the market. Therefore, it is heavily regulated and punishable by law in cases where it substantially affects the market.
Anti-competitive practices are commonly only deemed illegal when the practice results in a substantial dampening in competition, hence why for a firm to be punished for any form of anti-competitive behavior they generally need to be a monopoly or a dominant firm in a duopoly or oligopoly who has significant influence over the market.
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Types
Anti-competitive behavior can be grouped into two classifications. Horizontal restraints regard anti-competitive behavior that involves competitors at the same level of the supply chain. These practices include mergers, cartels, collusions, price-fixing, price discrimination and predatory pricing. On the other hand, the second category is vertical restraint which implements restraints against competitors due to anti-competitive practice between firms at different levels of the supply chain e.g. supplier-distributor relationships. These practices include exclusive dealing, refusal to deal/sell, resale price maintenance and more.
Horizontal integration
Horizontal integration can result in economies of scale, economies of density and be anti-competitive. When two companies with similar products or product characteristics merge horizontally, there is less competition. Horizontal mergers can also easily lead to a monopoly, reducing consumers' choices and indirectly harming consumers' interests.
Vertical integration
Vertical integration can result in economies of scope and reduce the hold-up problem and be anti-competitive. In absence of perfect competition, the Chicago school of economics argues that vertical integration may be pro-competitive by reducing double marginalization.
Common anti-competitive actions
Dumping, also known as predatory pricing, is a commercial strategy for which a company sells a product at an aggressively low price in a competitive market at a loss. A company with large market share and the ability to temporarily sacrifice selling a product or service at below average cost can drive competitors out of the market, after which the company would be free to raise prices for a greater profit. For example, many developing countries have accused China of dumping. In 2006, the country was accused of dumping silk and satin in the Indian markets at a cheaper rate which affected the local manufacturers adversely.
Exclusive dealing, where a retailer or wholesaler is obliged by contract to only purchase from the contracted supplier. This mechanism prevents retailers to lessen profit maximisation and/or consumer choice. In 1999, Dentsply entered a 7 years court complaint by the U.S., the dental wholesaler had been successfully sued for using monopoly power to restrain trade using exclusive dealings within contract requirements.
Price fixing, where companies collude to set prices, effectively dismantling the free market by not engaging in competition with each other. In 2018, travel agency giant, Flight Centre was fined $12.5 million for encouraging a collusive price fixing plan between 3 international airlines from between 2005 and 2009.
Refusal to deal, e.g., two companies agree not to use a certain vendor. In 2010, Cabcharge refused, on commercial terms, to allow its non-cash payment instruments to be accepted and processed electronically by Travel Tab/Mpos' system for the payment of taxi fares. Travel Tab/Mpos requested access to the instruments but Cabcharge refused twice. Penalties for the first and second refusal were $2 million and $9 million respectively.
Dividing territories, an agreement by two companies to stay out of each other's way and reduce competition in the agreed-upon territories. Also known as 'market sharing', a practice in which businesses geographically divide or allocate customers using contractual agreements that include non-competition on established customers, not producing the same goods or services and/or selling within specific regions. Boral and CSR formed a pre-mix concrete cartel and were penalized for bid rigging, price fixing and market sharing at an amount over $6.6million and a maximum of $100,000 on each of the 6 executives involved. The companies had agreed to recognize clients as belonging to suppliers without competition over regular meetings and phone conversations. Company market shares were monitored to ensure the agreement was not breached - this led to over-charging on construction quotes which were used by federal, state and local government projects.