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Antitrust Regulation

Antitrust Regulation

Antitrust regulation is the law introduced by a government to balance the share of economic power in business by making sure that there is healthy competition. Antitrust laws protect the consumers from predatory business operations and maintain fair competition in an economy.

Anticompetitive Behaviors

Many countries have extensive laws to protect consumers and control how businesses operate. Some of the behaviors targeted by the antitrust laws include:

1. Mergers and Acquisitions

A merger is an action of two firms of approximately the same size coming together and operating as one business entity even though they are separately owned and run. On the other hand, an acquisition is where a firm takes over another firm and establishes itself as the new owner. In case an anticipated merger or acquisition will affect market competition negatively, the regulatory institution will prevent the merger or acquisition or provide other alternatives—such as selling a portion of the business—to remedy the situation.

2. Price Collusion

Price collusion is a criminal offense where several companies conspire to keep the prices of certain goods high to make huge profits and hence reduce competition.

3. Price Discrimination

Price discrimination is a selling strategy where consumers are charged different prices for the same goods. The selling price, in this instance, is guided by what a seller thinks would be agreeable to their customer. Pure price discrimination occurs when a seller delivers products and services at the maximum price that the customer is willing to pay. Price discrimination jeopardizes fair competition.

4. Exclusive Dealings and Refusal to Deal

Exclusive dealings refer to cases where companies choose who to do business with and refuse to deal with other business entities. For instance, exclusive dealing may include the prevention of a supplier from selling to other buyers.

On the other hand, refusal to deal mainly occurs among the monopolies who use their market dominance to choose their business partners.

5. Engaging in Predatory Pricing

Predatory pricing is a criminal offense of lowering prices of goods and services to lessen competition. Consequently, predatory pricing infringes the antitrust laws and breeds a monopoly market.

6. Anticompetitive Behavior by Dominant Companies in a Market

Some of the anticompetitive practices by the dominant firms include abuse of dominance power by engaging in exclusive dealing with certain suppliers and retailers. For instance, Intel Corporation, commonly known as Intel, has been accused of abuse of its dominance by exclusively dealing with certain computer manufacturers and retailers.

In reaction to anti-competitive behaviors, the regulatory institutions may impose monetary sanctions or require the firms involved to change business, for example, a change in marketing techniques. In a worst-case scenario, some countries such as Germany and Denmark may imprison an individual involved in a cartel.

Question

Which of the following business scenarios is least likely to infringe antitrust laws?

  1. Mergers and acquisitions of leading firms.
  2. Anticompetitive behavior by powerful (dominant) companies in a market.
  3. Privacy and Data Protection.

Solution

The correct answer is C.

Regulation privacy and data protection are but a portion of regulations apart from the antitrust rules.

A and B are incorrect. These are likely to infringe the antitrust laws if mergers and acquisitions interfere with fair competition.

Reading 8: Economics of Regulation

LOS 8 (c) Describe anticompetitive behaviors targeted by antitrust laws globally and evaluate the antitrust risk associated with a given business strategy.

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