WHITE COLLAR CRIMES: ANTITRUST
The Sherman Antitrust Act, passed in 1890, is regarded as the primary federal antitrust law. Maintaining a monopoly or creating contracts to restrain trade unjustly are named violations of this trade and can bring about serious consequences, even though the suits would be handled in civil, not criminal court.
A monopolistic firm, according to the standard definition, reaps an economic benefit by restricting output and raising prices. The industries most frequently accused in the late nineteenth century of holding a monopolistic position were neither restricting output or raising prices.
Most antitrust activity can be classified in the following areas:
» bid rigging,
» monopolizations,
» price fixing,
» tying and
» vendor lock-in.
» MONOPOLY
In economics, a monopoly is defined as a persistent market situation where there is only one provider of a kind of product or service. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of viable substitute goods.
Monopoly should be distinguished from monopsony, in which there is only one buyer of the product or service; it should also, strictly, be distinguished from the (similar) phenomenon of a cartel. In a monopoly a single firm is the sole provider of a product or service; in a cartel a centralized institution is set up to partially coordinate the actions of several independent providers (which is a form of oligopoly).
Any agreement between business competitors regarding price is considered price fixing and is illegal in many countries. Methods of price fixing can include:
• Agreements to adhere to a price book.
• Agreements to engage in cooperative price advertising.
• Agreements to standardize credit terms offered to purchasers.
• Agreements to use uniform trade-in allowances.
• Agreements to limit discounts.
• Agreements to discontinue free service or to fix any other element of prices.
• Agreements to adhere to previously announced prices and terms of sale.
• Agreements establishing uniform costs and markups.
• Agreements imposing mandatory surcharges.
» PRICE FIXING
American law is very specific that price fixing is only illegal if it happens via communication and specific agreement between firms. It is not illegal for firms to copy the price moves of a de facto market leader as is the case with prices of cereals and cigarettes. Critics say that this rule makes the government not able to stop the majority of price fixing which harms consumers.
Bid rigging is sometimes regarded as price fixing. Price fixing is often practiced internationally. Examples of price fixing include oil whose price is controlled by OPEC. Also international airline tickets have prices fixed by agreement with the IATA, a practice for which there is a specific exception in antitrust law.
» TYING
Tying is the anti competitive practice of requiring de facto or de jure the customer to purchase a certain package of goods together. It is implied in this that one or more components of the package are sold individually by other businesses as their primary product, and thereby this packaging would hurt their business. It is also implied that the company doing this packaging has a significantly large market share so that it would hurt the other companies who sell only single components.
Horizontal tying is the practice of requiring customers to pay for an unrelated product or service together with the desired one. For example, all of one company's toothbrushes come with the company's ice skates. Microsoft ties together Microsoft Windows, Internet Explorer and Outlook Express.
Vertical tying is the practice of requiring customers to purchase related products or services from the same company. For example, a company's automobile only runs on its own proprietary gas and can only be serviced by its own dealers. Tying may be the action of several companies, as well as the work of just one firm.
» VENDOR LOCK-IN
Vendor lock-in, also known as proprietary lock-in, or more simply, lock-in, is a situation in which a customer is dependent on a vendor for products and services and cannot move to another vendor without substantial switching costs, real and/or perceived. By the creation of these costs to the customer, lock-in favors the company (vendor) at the expense of the consumer. Lock in costs create a barrier to entry in a market that if great enough to result in an effective monopoly, may result in antitrust actions from the relevant authorities.
It is often used in the computer industry to describe the effects of a lack of compatibility between different systems. Different cowmpanies, or a single company, may create different versions of the same system architecture that cannot interoperate. Manufacturers may design their products so that replacement parts or add-on enhancements must be purchased from the same manufacturer, rather than from a third party (connector conspiracy). The purpose is to make it difficult for users to switch to competing systems. This approach is not limited to the computer industry, however. For example, as of 2004 Sony digital cameras typically use add-in memory that can only be acquired from Sony, and this memory is typically much more expensive than alternatives available from multiple sources.
Lock-in may eventually also be damaging to the company or industry in question. In the UNIX wars, various Unix vendors battled so hard to lock their customers into their version of Unix that the entire Unix market was seriously affected. Sun Microsystems' unwillingness to open Java to external standardization bodies and the lack of multiple competing Java runtime implementations is widely held to be the reason Java has failed on the desktop.
One way to create artificial lock-in for items without it is to create loyalty schemes. For example, frequent flyer miles that can only be used with one airline create a perceived cost of switching airlines, as do supermarket "discount" cards.
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