Market competition is generally considered to be good for consumers. Among other things, competition is thought to yield product diversity, appropriate availability and distribution of goods and services and improved prices. When companies work together to reduce competition--perhaps in order to shield profit margins from the effects of such competitive behavior--these consumer benefits are generally reduced. Antitrust laws restrict such anticompetitive behaviors on the theory that such restrictions on competition harm consumers.
In the United States, antitrust laws are enforced by the Federal Trade Commission (FTC). Such regulation means that all companies must be careful to strictly comply with antitrust provisions or risk expensive penalties. Discussing antitrust law and compliance with an antitrust lawyer in the Priori network can help you ensure that your company remains in compliance with antitrust law, rules and regulations.
Defining Antitrust Law
Antitrust law restricts business practices that limit competition. Typically, we think of antitrust laws as anti-monopoly laws and actions that break up large corporations, but the rules extend beyond simple monopolies. More broadly stated, the goal of antitrust provisions is to ensure fair competition in an open-market economy, so that prices and the availability of goods benefit the average citizen.
Single Firm Violations, aka Monopolies
Single firm violations of antitrust laws are the most commonly recognized antitrust violations. These are violations of the antitrust provisions prohibiting monopolies and barring companies from actions intended to create such monopolies in an industry. Generally, a de facto monopoly is only illegal if it is obtained through aggressive business practices, such as refusing to deal with customers who have done business with a competitor, but acquiring a monopoly in a large industry is still illegal and subject to government action, especially if the company charges exorbitant prices after monopolizing the market.
It’s important to note that not all monolopolistic behavior is regulated and, conversely, some regulated behavior isn’t monopolistic on its face. An example of the latter category is “tying”, or grouping the sale of two products, which can be considered monopolistic behavior if it forces a customer to buy a less desirable product that may not otherwise be competitive in its respective market. On the other hand, developing protected intellectual property that allows your company to out-compete -- and perhaps establish complete market domination in a certain market -- does not indicate prohibited monopolistic behavior. Because the development of such intellectual property is considered to help consumers -- either by lowering prices or making available a good or service that wouldn’t otherwise be available -- the government permits a time-limited monopoly over the use of such intellectual property as an incentive for developing it. Other companies can, of course, still compete in the market by developing competitive or superior intellectual property of their own.
Types of Illegal Anticompetitive Industry Actions
The most harshly and commonly pursued antitrust violations are collaborative actions of companies in the same industry. Competitors are allowed to collaborate in order to compete in today’s interconnected, modern market, especially through organizations like trade associations or through innovative research collaborations. These interactions are considered to benefit the market and stimulate efficiency and beneficial consumer pricing or standards in the long run. Competitors cannot, however, collude in ways that allow them to aggressively manipulate the market through agreements to the detriment of the consumer. Such actions are prohibited under antitrust law.
The following are some of the most common prohibited anticompetitive industry actions that can lead to sanctions for any and all companies involved in a scheme:
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Price Fixing. Each company is required to decide upon prices on its own. When companies within an industry agree upon a price together, this is an antitrust violation.
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Bid Rigging. It is illegal for companies to coordinate bids for a job, such as agreeing in advance who should get a project.
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Market Division or Customer Allocation. Dividing territories or markets among competitors in an attempt to let each other corner the market in a particular zone is prohibited. (This is not necessarily the case within companies or when licensing the same product, where such practices are permitted.)
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Anticompetitive Agreements. Most other agreements between competitors are allowed under certain circumstances, but any agreement that overly disrupts the market or limits consumer choice through a de facto monopoly can be considered an antitrust violation.
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Group Boycotts. Agreeing not to work with a certain supplier or other business can be a common anticompetitive agreement subject to antitrust scrutiny. It is only permitted if due to quality, safety, or some other consumer protection concern (such as an association of doctors agreeing not to use a machine known to malfunction and hurt patients). Otherwise, these are another per se violation.
Supply Chain Violations of Antitrust Laws
Vertical supply chain agreements are also subject to antitrust law, even through these agreements rarely occur between competitors, because they can affect the competitiveness of two firms that are on the same level. Although most vertical agreements are not prohibited from including exclusive dealing clauses or price ceilings, these actions still are subject to antitrust scrutiny if manufacturer- or supplier-imposed restraints could make it difficult for a newcomer to enter the market, especially in markets with few sellers. Although manufacturer-dealer or supplier-manufacturer deals encourage market competitiveness by reducing costs and promoting an efficient distribution of products, it is still vital for these deals not to step over the bounds of reasonable restrictions.
Antitrust Compliance
All companies must comply with antitrust law, regardless of industry. Supply chain agreements, pricing practices, and other company actions that could be perceived as affecting market competition should be vetted by an antitrust attorney in order to avoid costly antitrust prosecutions. The FTC takes all accusations of anticompetitive behavior very seriously, so it is vital to consider the wider ramifications of any relevant action.
FAQ
Are trade associations in violation of antitrust laws?
Generally, no. Trade associations usually have the goal of allowing actors in the same market to discuss mutual concerns and to build each other up. So long as interactions within the trade association do not limit competition, these associations are not in violation of antitrust laws.