- Antitrust laws provide level playing field and encourage fair competition protecting consumers from monopolistic practices
The modern business has evolved through various phases from Industrial revolution that started in 1760 to modern digital era. The industrialists, during these phases, resorted to different commercial strategies to maximize their profits. However, these ambitious investments resulted in more factories and service providers triggering tough competition. This gradual increase in production capacities imposed by more and more competitors joining the business arena narrowed down the available sales maneuvers, limiting the number of strategic choices for the industry players to beat the emerging competition.
Infact, initial response to this growing competition was positive as this forced the manufacturers and service providers to improve the production process to cut cost and add promising features to the product to give more satisfaction to their customers by high quality and low price. But these features, once innovative, were no more delightful for the customers who had myriad of choices to select from. Steadily the wants become needs and ceased to delight the knowledgeable customers anymore.
These were the circumstances when the companies started losing their market share and the major persuading marketing factor motivating the customers turned out to be low price. Markets were plagued by the surplus capacities and the manufacturers and service providers had to resort to price cuts to maintain the sales. This price struggle was obviously a free market factor and the invisible hand, as described by Adam Smith, did the good for the customers. This price war started leading to financial losses for the businesses making the manufacturing financially unfeasible. This raises apprehensions that the factories might have to shut down their operations. By late 19the century industries responded to this market instability and uncertainty by regulating trade and prices. It was not prohibited till it became largely illegal after WWII due to antitrust laws. This was most probably the start of the modern business cartels that might have started to attain a legitimate goal of avoiding irrational price wars and safeguarding the industry form complete collapse. But unfortunately, this gradually led to formation of massive trusts/alliances gaining immense power. It started becoming a tool for controlling markets and suppressing competition causing public concerns.
Historically, modern antitrust laws have their origin in first modern statute enacted by Canada in 1889. The Government bodies started taking notice of such collusions by prohibiting contracts, conspiracies, or attempts to monopolize trade. The global convergence towards criminalizing serious cartel conduct become evident by the start of 20th century. US Government enacted Sherman Act 1890, Clayton Act 1914, FTC Act 1914 to protect consumers from monopolistic abuses.
The major market manipulation tactics employed by business cartels to beat the fair competition are Price fixing, sharing markets, rigging bids and controlling output. Like other countries, Pakistan legislature has also enacted Competition Act, 2010 to ensure fair competition. Though it does not have the word cartel but it clearly prohibits the agreements that can lead to such cartels. It has laid down three main pillars to prevent the formation of any cartel in Pakistan i.e. 1- section 3 of the Act prohibits the abuse of a dominant position through any practice that prevents, restricts, reduces or distorts competition in the relevant market. 2- Section 4 of the Act prohibits undertakings or associations from entering into any agreement or making any decision in respect of the production, supply, distribution, acquisition or control of goods or services conditional on the purchase of other goods and services. 3- This Act also prohibits mergers that would substantially lessen competition by creating or strengthening dominant position in the relevant market. This legislation is in conformance with the international standards to prevent forming of cartels.
The major purpose of the antitrust laws is to provide level playing field and encourage fair competition among the competing businesses. These laws act as deterrence against monopolistic practices of the companies, practices that can harm the consumers by creating unfair market advantages suppressing economic freedom. There are few notable examples how these laws have been applied to maintain competitive market by preventing the abuse of market power. These examples include Standard Oil Company of New Jersey Vs United States (1911) where Supreme Court observed anti-competitive practices and dismantled the company into 34 distinct parts to break the illegal monopoly. Some of these entities later become ExxonMobil and Chevron. In US Vs AT&T (1982) the settlement resulted in One Long distance company (Ma Bell) and seven “Baby Bells” regional Bell operating companies that encouraged competition and innovation. The modern cases are US Vs Microsoft Corp (2001) the Microsoft was sued for its dominance over PC Operating System market (Window); the case led to restrictions on Microsoft’s business practices and fostered greater competition in the internet related software market. Competition Commission of Pakistan has also taken notice of various market abuse cases like price fixing (Section-4 of the Competition Act), abuse of dominant position (Section-3) and deceptive marketing (Section -10) and have issued notices to cement, sugar, fertilizer, flour, tractors, ice cream and telecommunication sectors.
The role of the antitrust laws is pivotal to ensure market transparency and to protect consumer rights. But the use of these laws require comprehensive industry knowledge, professional market study and valid competitive analyses. Competition is an integral part of free market and capitalism. However, without constant vigilance of regulatory bodies, the larger companies can ruthlessly destroy the smaller industry players killing the competition. However, the temptation to respond to any such complaint and taking corrective actions should be resisted unless there is a clear valid market evidence of any such collusion.
The role of antitrust laws being vital in ensuring fair competition is obvious but the possibility of its inconsiderate application can lead to market disaster. The regulatory body should constitute the staff having field experience and enough business acumen to understand market dynamics and competition intricacies. For example, going-rate pricing of a certain homogenous product is not necessarily a collusion among producers and can be a dictate of the free market and it requires thorough market investigation before labelling it unfair market practice. Similarly, all mergers cannot essentially be an attempt to monopolize the market, it can be a revival of the failing business. As such the decisions of the regulatory bodies should be based on merit discarding political pressures and poorly informed naive media outcry. The application of antitrust laws is infact a double edged sword and requires a sword master capable of slashing unfair market practices while shying away from the moves that can kill the industry. The legislature should also consider all these factors and expert opinions before enacting such laws else all such laws, in the words of former US Federal Reserve chairman Alan Greenspan, would be a “jumble of economic irrationality and ignorance.”
(The writer is a sales and business strategist based in Islamabad. He can be reached at nadeem_naj@hotmail.com)