Essays academic service


What is the high degree of market concentration in boon or threat to consumers

The Ordoliberal, Austrian, Chicago, post-Chicago, Harvard, and Populist schools, for example, can disagree over how competition plays outs in markets, the proper antitrust goals, and the legal standards to effectuate the goals. But they unabashedly agree that competition itself is good. Antitrust policies and enforcement priorities can change with incoming administrations.

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Some policies that ostensibly restrict competition are justified for promoting competition. Intellectual property rights, for example, can restrict competition along some dimensions such as the use of a trade name. But the belief is that intellectual property and antitrust policies, rather than conflict, complement one another in promoting innovation and competition. First, consumers can pay more for poorer quality products or services, and have fewer choices.

Second, governmental or private restraints can raise exit costs and inhibit innovation. Competitors, challenged by new rivals or new forms of competition, may turn to regulators for help. Competitors may ask governmental agencies under the guise of consumer protection to prohibit or restrict certain pro-competitive activity, such as discounts to their clients.

They may enlist the government to increase trade barriers or for other protectionist measures. Finally, impeding competition can cause significant anti-democratic outcomes, like concentrated economic and political power, political instability, and corruption.

Competition sacrificed As the previous section discusses, competition, given its virtues, is the backbone of US economic policy. But competition, while often praised, is also criticized. Activity not subject to competition Life would be more stressful if we competed for everything.

Competition cannot always be preferred over cooperation. Cooperation is often more appealing and socially rewarding. Commuting to work, in theory, is not a competitive sport. Parents should not foster competition among their children for their affection. Nor do the mainstream religions endorse a deity who wants people to compete for His love.

Antitrust norms do not translate easily in these social or religious settings.

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One example is human organs. Markets once considered repugnant eg lending money for interest, life insurance for adults are no longer. Markets that are repugnant today eg slaveryonce were not. Antitrust immunities The US antitrust laws apply across most industries and to nearly all forms of business organizations.

But the Court noted: Surely it cannot be said … that competition is of itself a national policy. To do so would disregard not only those areas of economic activity so long committed to government monopoly as no longer to be thought open to competition, such as the post office, cf. It would most strikingly disregard areas where policy has shifted from one of prohibiting restraints on competition to one of providing relief from the rigors of competition, as has been true of railroads.

But Sherman did not see: Such an association is not in any sense a combination arrangement made to interfere with interstate commerce. Just as athletic contests distinguish between fair and foul play, the law distinguishes between fair and unfair methods of competition.

As one treatise observed: The law of unfair competition has developed as a kind of Marquis of Queensbury code for competitive infighting. The antitrust community would debate over what constitutes fair and unfair methods of competition, but agree that not all methods of competition are desirable.

The community would likely tolerate price and service regulations in some industries eg natural monopolies where competition is not feasible. As one American court observed: The Sherman Act, embodying as it does a preference for competition, has been since its enactment almost an economic constitution for our complex national economy.

A fair approach in the accommodation between the seemingly disparate goals of regulation and competition should be to assume that competition, and thus antitrust law, does operate unless clearly displaced.

The dark side of competition In condemning private and public anti-competitive restraints, competition officials and courts invariably prescribe competition as the cure.

But that is a function of market conditions, not competition itself.

  1. The FTC in Ethyl described this divergence. If only one person bids, that person gets a bargain.
  2. For Russian consumers, the outlook is mixed.
  3. That job has almost vanished in the past decade with few account holders getting a pass book. Second, after identifying these consumers, firms must be able to exploit them.
  4. Commuting to work, in theory, is not a competitive sport. If repeated biased decision-making is not punished, the problem is too little, rather than too much, competition.
  5. Second, the wide dispersion of bank debt among small, uninformed and often fully insured investors prevents any effective discipline on banks from the side of depositors. It is also a problem for the European Central Bank, which wants to boost inflation from just 0.

Competition itself cannot cause market failures. Economist Irving Fisher over a century ago examined two assumptions of any laissez-faire doctrine: In the past decade, the economic literature has identified several scenarios where the problem is not too little competition, or concerns over unfair methods of competition, but the suboptimal effects from competition itself. Behavioral exploitation Competition policy typically assumes that market participants can best judge what subserves their interests.

Suboptimal competition can arise when firms compete in fostering and exploiting demand-driven biases or imperfect willpower. To illustrate, suppose many consumers share certain biases and limited willpower. Competition benefits society when firms compete to help consumers obtain or find solutions for their bounded rationality and willpower. Providing this information is another facet of competition—trust us, we will not exploit you.

Some consumers do not understand the complex, opaque ways late fees and interest rates are calculated, and are overoptimistic on their ability and willpower to timely pay off the credit card purchases. Alternatively, the debiased consumers do not remain with the helpful credit card company.

Instead they switch to the remaining exploiting credit card firms, where they, along with the other sophisticated customers, benefit from the exploitation such as getting airline miles for their purchases, while not incurring any late fees.

This problem, of course, can arise under oligopolies or monopolies. But here entry and greater competition, as one recent survey found, can worsen, rather than improve, the situation: The most striking result of the literature so far is that increasing competition through fostering entry of more firms may not on its own always improve outcomes for consumers.

Indeed competition may not help when there are at least some consumers who do not search properly or have difficulties judging quality and prices … In the presence of such consumers it is no longer clear that firms necessarily have an incentive to compete by offering better deals.

Rather, they can focus on exploiting biased consumers who are very likely to purchase from them regardless of price and quality. These effects can be made worse through firms' deliberate attempts to make price comparisons and search harder through complex pricing, shrouding, etc and obscure product quality.

The incentives to engage in such activities become more intense when there are more competitors.

  1. Member nations of the cartel are worried they'll lose market share if they lower production. The community would likely tolerate price and service regulations in some industries eg natural monopolies where competition is not feasible.
  2. In local money, 95-octane gasoline costs 35. The bank has not only been slowing branch expansion and hirings, it has also been reducing overall headcount even as it remains the gold standard of Indian banking.
  3. That job has almost vanished in the past decade with few account holders getting a pass book.
  4. This essentially could lead to more and more claims for insurance firms. The linearity at the back end —that as transactions go up the number of people should also go up —has been broken.
  5. Just as athletic contests distinguish between fair and foul play, the law distinguishes between fair and unfair methods of competition.

Second, after identifying these consumers, firms must be able to exploit them. But firms, like consumers, are also susceptible to biases and heuristics. In competitive settings—such as auctions and bidding wars—overconfidence and passion may trump reason, leading participants to overpay for the purchased assets.

If repeated biased decision-making is not punished, the problem is too little, rather than too much, competition. But if everyone believes this, no one bids—also illogical. If only one person bids, that person gets a bargain. Once multiple bidders emerge, the second highest bidder fears having to pay and escalates the commitment. Competitors A and B, in their example, fear being competitively disadvantaged if the other acquires cheaply Company C, a key supplier or buyer.

Both are better off if the other cannot acquire Company C, nonetheless neither can afford the other to acquire the firm.

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If they both know they cannot acquire Company C under the antitrust laws, neither will bid. Antitrust, while not always preventing the competitive escalation paradigm, can prevent overbidding in highly concentrated industries where market forces cannot punish firms that overbid. When individual and group interests diverge Suppose the first assumption Fisher identifies is satisfied—people aptly judge what serves their interest, which leads them to maximize their well-being.

One avoids the problem of behavioral exploitation and perhaps the competitive escalation paradigm. Competition benefits society when individual and group interests and incentives are aligned or at least do not conflict. Difficulties arise when individual interests and group interests diverge. As Darwin saw clearly, the fact that unfettered competition in nature often fails to promote the common good has nothing to do with monopoly exploitation.

Hockey players prefer wearing helmets. But to secure a relative competitive advantage, one player chooses to play without a helmet. The other players follow. None now have a competitive advantage from playing helmetless. Collectively the hockey players are worse off. They and society are collectively worse off. How individual and group interests can diverge when firms lobby for a relative competitive advantage Today corporations and trade groups spend billions of dollars lobbying the federal and state governments.

Microsoft now spends millions of dollars annually on lobbying. In this transactional spirit, some corporations have affirmatively urged Congress to place limits on their electioneering communications.

These corporations fear that officeholders will shake them down for supportive ads, that they will have to spend increasing sums on elections in an ever-escalating arms race with their competitors, and that public trust in business will be eroded.

A system that effectively forces corporations to use their shareholders' money both to maintain access to, and to avoid retribution from, elected officials may ultimately prove more harmful than beneficial to many corporations. It can impose a kind of implicit tax. When presented with a list of possibly questionable actions that may help the business survive, 47 per cent of CFOs felt one or more could be justified in an economic downturn.

Worryingly, 15 per cent of CFOs surveyed would be willing to make cash payments to win or retain business and 4 per cent view misstating a company's financial performance as justifiable to help a business survive.

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While 46 per cent of total respondents agree that company management is likely to cut corners to meet targets, CFOs have an even more pessimistic view 52 per cent. Other firms, given the cost disadvantage, face competitive pressure to follow; such competition collectively leaves the firms and society worse off.

But under a shared value worldview, these concepts are reinforcing. How individual and group interests can diverge when financial institutions undertake additional risk for a relative competitive advantage The conflict between collective and individual interests arose in the financial crisis.

Banks, the OECD described, are prone to take substantial risks: First, the opacity and the long maturity of banks' assets make it easier to cover any misallocation of resources, at least in the short run. Second, the wide dispersion of bank debt among small, uninformed and often fully insured investors prevents any effective discipline on banks from the side of depositors. Thus, because banks can behave less prudently without being easily detected or being forced to pay additional funding costs, they have stronger incentives to take risk than firms in other industries.

Examples of fraud and excessive risk are numerous in the history of financial systems as the current crisis has also shown. Even for rational-choice theorists like Richard Posner, the government must be a countervailing force to such self-interested rational private behavior by better regulating financial institutions.