Antitrust And The American Consumer

The industry I’ve selected is the cellular phone service industry. This industry’s market structure is an oligopoly, meaning that a few large firms control the market. Four main firms, T-Mobile, AT&T, Sprint, and Verizon dominate the cell phone service industry. Although the four firms compete against one another, they typically avoid price competition in order to avoid price wars that decrease profits for all. Instead, they use other tactics, such as advertising and improved customer service to gain a higher demand in the market. Price wars occur due to the interdependence of firms involved in an oligopolistic market structure. A decision made by one firm to increase or decrease prices will lead to a fluctuation of the demand curve for the

Price fixing is illegal under the competition act of 1998. When participants on the same side of the market (such as the big 4 in the UK supermarket sector) agree to sell a service, product or commodity at a fixed price it’s the consumers who must pay while retailers and suppliers reap the benefits. There are extremely heavy penalties for price fixing in the UK You can be fined, disqualified from being a director - or even sent to prison (Business Link No Date).

However, when the equilibrium price is beyond the expectation of a fair market value, for reasons of political or social concerns governments will intervene in the market and establish limits on such things as wages, apartment rents, electricity, or agricultural commodities. Government uses price ceilings and price floors to keep prices below or above market equilibrium. (Stone, 2012, page 68)

Antitrust law in the United States is a collection of federal and state government laws regulating the conduct and organization of business corporations with the intent to promote fair competition in an open-market economy for the benefit of the public. Congress passed the first antitrust statute, the Sherman Antitrust Act, in 1890 in response to the public outrage toward big business. In 1914, Congress passed two additional antitrust laws: the Federal Trade Commission Act and the Clayton Act. (The Antitrust Laws. Web.)

Generally a firm set “prices to attract new customers or profitably retain existing ones”(300). A firm could set prices low so that competition cannot enter the market or set prices at competitor’s level to keep the market constant. In the Trader’s Joe example, all of their prices are exceptionally low for high priced things even Trader Joe’s products can’t even be found anywhere else. This helps to eliminate competitors in an extraordinary

Price gouging also serves to discourage overspending and hoarding. In October of 2012, Thakur Gas in Branchville, New Jersey was slammed with a $50,000 fine for raises prices 17% when Hurricane Sandy hit. According to the article “A Case for Price Gouging” by Matthew Yglesias, what Thakur did makes sense: if there’s a demand for a product or service, you try to sell more of it, but if you can’t, you raise the prices. Customers won’t like it, but they also won’t like it if the gas runs out because it was all bought up earlier by stockpiling

However, there is an incentive for them to work together, as they would be able to maximize their profits across the industry rather than competing amongst one another. This way, a cartel can be established to fix selling prices, purchase prices, and reduce production using a variety of tactics.

Competition laws or antitrust laws are to assure that all consumers that they have the opportunity to pay the lowest price added to with a higher quality of products and services they are utilizing. “Using dominant industry power to secure favorable product prices from buyers, even though such prices are unavailable to weaker companies in the same industry, is generally a violation of antitrust laws” (SBA GOV2011).Currently competition laws enables every single person to do business in the market. “The importance of the development of an effective framework for competition policy lies on its ability to enhance international trade, multilateral cooperation and the flow of investments

pricing closely, as being out of step with the market can cause dramatic market share changes in a

Assuming there is pure competition in the market place, and no government intervention, we are able to focus on how the price mechanism determines the equilibrium price in the market. Markets can be effective at resolving the basic issues of what and how much to produce at a certain price level although left to operate on its own, the market can still create unsatisfactory outcomes. When markets do not produce the desired outcome, it is known as market failure and when this occurs, governments may intervene in the market.

If the business is a monopolist, then it has price-setting power. At the other extreme, if a firm

Rigidity in Price: There is little or no change in prices as the market structure is modelled on this aspect of rigidity. Such changes result in change of market shares and disrupt the co-ordinated functioning of the firms. However, this said, it is well known that power often determines the functioning of an oligopoly. Players which have influence and monetary worth can manipulate the working of the market in order to suit their needs thus making them price makers instead of price takers.

Competitive rivalry is extremely high: if someone raises prices, they'll be quickly undercut. Intense competition puts strong downward pressure on prices.

This is done either by providing a range within which prices can be fixed by the operators, or by not extending price regulation to certain products (normally products with competitive markets or those that are not considered essential).

Therefore, all firms in the industry would suffer from a sharp fall in profits as they continuously cut prices to compete with each other. Eventually, prices will have to rise again to restore profitability and the firm that started the price war could have lost market share. Therefore firms want to avoid price competition as all firms will lose out in the long term due to reduced profits. So there is an incentive for firms to form a price agreement in order to reduce uncertainty.