Economics
Restriction on Competition
Restriction on competition refers to any action or practice that hinders or limits the ability of firms to compete in a market. This can include collusion, price-fixing, monopolistic behavior, or barriers to entry. Such restrictions can lead to reduced consumer choice, higher prices, and decreased innovation within an industry. Regulatory bodies often aim to prevent and address these restrictions to promote fair competition.
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6 Key excerpts on "Restriction on Competition"
No longer available |Learn more- William Baumol, Alan Blinder, John Solow, , William Baumol, Alan Blinder, John Solow(Authors)
- 2019(Publication Date)
- Cengage Learning EMEA(Publisher)
Copyright 2020 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Chapter 14 Limiting Market Power: Antitrust and Regulation 289 14-4 CONCENTRATION We have already seen that outright collusion to restrict competition is illegal, but there are other situations in which a group of firms may come to an agreement about economic behavior that, while restricting other firms’ opportunities, may nonetheless be good for society. Suppose, for example, that four real estate companies in a city agree to share information about the properties they are trying to sell, but choose not to share that information with another company. This arrangement provides benefits to people looking for a house to buy: Instead of visiting every real estate company to see what houses are available, they can visit any one of the four companies and see what all of them have to offer. At the same time, it puts the company that is left out at a competitive disadvantage, because its customers can only see the houses that it is listing. It may lose business accordingly. Should this agreement among rivals be considered an anticompetitive act? The answer depends to a large degree on how much of the housing market in that city the four firms represent, that is, on the degree of concentration in the real estate industry. If there are 25 real estate firms in the market, each with a 4 percent market share, then the firm that is excluded has 21 potential other partners with which to form a similar information-sharing arrangement. So, it is unlikely that they are injured while customers still gain.
eBook - PDFSecuring Compliance
A Principled Approach
- Karen Yeung(Author)
- 2004(Publication Date)
- Hart Publishing(Publisher)
5 Because the monopolist is not constrained by the threat of competition, it faces few incentives to drive down its costs to the lowest level or to innovate in order to attract and retain custom. The result is a misallocation of resources, wasteful expenditure and hence a loss to society at large. Competition is therefore essential to the pursuit of economic efficiency. 6 The antithesis of competition is market power. A firm possesses market power when it is free to act independently of its competitors, customers, and suppliers. 7 A firm with market power is thus able to ‘give less and charge more’, 8 exploiting the conditions of the market to maximise its own profit, thereby reducing soci-ety’s general welfare. Because firms can generate higher profits if they possess significant market power, rational profit-maximising firms can be expected to pursue strategies that will enhance their market power. Economists have identified three kinds of market power enhancing strategies: collude with com-petitors, merge with competitors or deter competitors from entering the market (or induce existing competitors to leave the market). Modern competition law seeks to block these three routes to market power, in order to safeguard the competitive process and thereby promote economic efficiency. 9 16 Competition Law and Policy 5 Scherer and Ross (1990), 15–17 and 21–29; Cooter and Ulen (1997), 30–31. 6 Although competition has traditionally been understood in terms of price competition, non-price competition can also occur in various guises. Firms may compete on the number of brands they put on the market, in product quality, after-sales service, marketing and so forth. Over time, firms may compete in physical investment or in research and development. 7 Hoffman La-Roche v EC Commission [1979] ECR 461, para 38.
eBook - PDFJuridification of Social Spheres
A Comparative Analysis in the Areas ob Labor, Corporate, Antitrust and Social Welfare Law
- Gunther Teubner(Author)
- 2012(Publication Date)
- De Gruyter(Publisher)
For companies, prohibitions or mandatory behavior under cartel law are not just a question of legal standards which must be taken into account along with economic and other data. They often deprive companies of options in deci-sion-making which can be of crucial importance, and in extreme cases may mean life or death for the company. This is reflected in the fact that antitrust law difficulties very rapidly go beyond the legal department and become the concern of company management itself. This fact explains why here, more than in many other areas of law, the attempt is made to sound out peripheral areas of legality and discover whether an evasion will be recognized or a violation discovered. The situation is illustrated by the bidding cartels in the German building industry, which in spite of clear legal prohibitions going back for decades and corresponding efforts to enforce them by the federal cartel office, continue to operate. In addition, there are considerable difficulties of proof, also well illustrated by the bidding cases. Cartel agreements and other restrictive trade practices often come to light only by chance, e.g. when a company manager has not destroyed related memoranda, or an employee leaves a company on bad terms and spills the beans. Above all, entrepreneurial conduct on the market does not clearly reflect whether restrictive trade practices are in use or not. Practi-cally any conduct on the market can be used for restrictive purposes. We must also remember the limited legal, personnel, and financial resources Restrictive Trade Practices and Juridification 315 available to those bodies responsible for the enforcement of antitrust law. International comparison shows striking discrepancies in the setting of political priorities in this area. Without appropriate resources even the best antitrust law will be ineffective.
- Valentine Korah, Denis O'Sullivan(Authors)
- 2002(Publication Date)
- Hart Publishing(Publisher)
Exclusive rights con-ferred by government create entry barriers, even on the narrowest definition used by Stigler. 1.2.3.2 Output restricting effects of vertical restrictions Vertical arrangements may have horizontal anti-competitive effects, even accord-ing to economists of the Chicago school. Where markets are concentrated, verti-cal agreements may support horizontal collusion, actual or tacit, parallel behaviour that has similar effects to collusive price fixing, at either the producers’ or the dealers’ level of trade. In many trades, rpm originated as a horizontal cartel at the dealers’ level. Horizontal price fixing either between producers or between dealers 57 is now illegal wherever there is a competition law, although, it may be dif-ficult to detect it. A more sophisticated version of the argument is that vertical agreements enable producers in oligopolistic markets to operate more effectively as if there were an illegal cartel agreement without having to organise one and infringe Article 81. If there are only a few suppliers of a product for which there is no satisfactory substitute protected by entry barriers, each may charge considerably more than the cost of producing and marketing (including a normal return on capital) for extended periods. Each of the others knows that if any of them were to undercut in order to increase its market share, the others would soon discover this, and each reduce its prices. Each may act as if there were a price fixing or market allocation agreement although there is none. 55 Charles Baden Fuller , “Economic Issues Relating to Property Rights in Trademarks: Export Bans, Differential Pricing, Restrictions on Resale and Repackaging,” (1981) 6 ELRev 162. Derek Ridyard and David Lewis , “Parallel Trade in Patented Medicines—Economics in Defence of Market Segmentation”, [1998] Int TLR 12. Concepión Fernández Vicién , “Why Parallel Imports of Pharmaceutical Products Should be Forbidden” [1996] ECLR 219.
eBook - PDFCompetition Law and Economic Regulation
Making and Managing Markets
- Niamh Dunne(Author)
- 2015(Publication Date)
- Cambridge University Press(Publisher)
The competitive process and com- petition law are fall-back options in the event of deregulation. A corollary of this divergence is that regulation becomes the province of specialisation and experts who are well-versed in the peculiarities of an industry and best-placed to address sector-specific problems. Competition law, by contrast, comprises legal rules of general applica- tion, with the attendant advantage of increased legal certainty by virtue of the development of a comprehensive body of legal precedent defining the method and parameters of its enforcement. This approach accords with the view that competition law should encompass only economics-based objectives. Under this view, compe- tition law operates in tandem with the market mechanism, which functions to secure the most efficient allocation of resources. This model can also accommodate the antitrust objective of protecting the competitive process, 292 compared with the regulatory decision to step outside this process. Competition law is, accordingly, a purely economics-focused phenomenon. Competition law prohibits firms from engaging in anticompetitive conduct in order to control 287 Carstensen (1983:506). 288 Loevinger (1966:131–9). 289 Loevinger (1966:118–22). 290 Klein (1998:48). 291 Kahn (1988:115/II). 292 Fox (1981). 52 introduction monopoly power or prevent it from arising, but does not require firms to perform intrinsically unprofitable activities. Regulation, conversely, may be used to achieve social or redistributive functions. 293 Bork argued that antitrust is wholly prohibitory and passive in nature, and thus ‘unable to serve values that must be implemented by requiring affirmative conduct which the self-interest or capabilities of private persons do not cause or permit them to undertake’.
- Michal S. Gal, Michal S. GAL(Authors)
- 2009(Publication Date)
- Harvard University Press(Publisher)
Efficient regulation of such agreements is thus most important for small economies. The dual nature of many cooperative arrangements requires that their existence serve only as an invitation to further analysis rather than a basis for automatic condemnation. Such agreements should be appraised in their economic context to determine their overall effects on competition. When such agreements operate on a lasting basis and preserve very limited competition between their parties, they might best be subject to the same rules that apply to mergers. 37 The analysis should include three basic steps: determining the po-tential restriction of competition, determining the pro-competitive ef-fects, and balancing the two. Small size gives rise to several important factors that should be granted sufficient weight in the analysis. First, the balancing of pro-and anti-competitive effects should include total welfare considerations to allow firms located in small economies to achieve the lowest production or distribution costs, which are impor-tant for productive efficiency, for competing effectively with imports, and for reducing inefficient product differentiation. Second, the bal-ancing test should give much weight to dynamic efficiency consider-ations, which are vital for the ability of domestic firms to compete with foreign firms. Finally, the omnipresence of and the necessity for cooperative agreements in many markets create a need for a cost-ef-fective and timely review of cooperative arrangements. Determining the potential restriction of competition created by a cooperative arrangement is the first step in analyzing its effects. If the agreement has no restraining effects, then no competitive issue is raised.
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