Market power and anti competitive behavior

Economies of any region depict the financial strength of the same. Moreover, the markets are a barometer of the strength of the economic strength of a region. The above depends on the industrial development and growth which reflects the productivity of the region and its dependence on others.

Markets are determined by the basic two laws-“Law of Supply” and the “Law of Demand”. The Supply Law describes a direct relationship between the quantity produced and the price-manufacturers shall produce more due to high prices which means more revenues/profits. The Demand Law describes an inverse relationship between the quantity demanded and the price-consumers shall purchase more due to low prices and opportunity costs (cost of leaving out something for another).

Therefore, to balance the demand and supply forces, equilibrium is maintained wherein the demand and supply meet at a point agreeable to both the manufacturers and consumers. Above this point means an excess of supply (to lower price), while, below this point is excess of demand (to increase price).

Hence, the above laws work when all factors (not price) are constant. If any other factor comes into play, then shifts occur. A “Demand Law Shift” means more quantity at same price while the “Supply Law Shift” means that at the same price, less quantity is sold. Thus, the law of equilibrium does not play here.

Hence, a supplier is not able to increase price without losing consumers. However, in cases of “Market Power” suppliers can increase the prices above the equilibrium point without losing profits/customers.

This is determined by the factors as “Market Share” (the monetary value, units of sales and production, production capacity). If you have more market share, you have more influence, though it is not a final say. “Barriers” is a factor if no new supplier can enter into the existing competitors’ realm, thus reducing competition. “Pricing” of the products if based on “follow the leader” shows that the supplier and not the market forces determine the products’ price. This is possible when you have excess “profits” which means less competition in the prices. “Vertical Integration” means that a supplier is having influence in one market and can exploit the revenues earned in other markets.

The combination of above factors can help to determine the market share which in turn leads to anti-competitive practices which are illegal and are under anti-trust laws all over the world.

Anti-competitive practices can be of many types like: “Dumping” of products at lower prices making competition tough, “Exclusive/Refusal dealing” wherein a retailer/wholesaler must buy from a supplier or companies refuses to deal with a vendor. “Price fixing/collusion/restrictions” between companies to fix prices. “Tying up of unrelated Products” for sale thus restricting consumers’ choice. “Coercive monopoly” wherein a company has all the rights and share to a product market and no other can join. This company can be one approved by the Government approved or the Government itself. This can be done via subsidies/regulations, Protectionism, Tariffs and Quotas. Others include “Barriers to entry”, “Dividing of territories” among companies, restriction in “Resale prices” by resellers, “Misuse of Patent, Copyright, or other Intellectual Property”, and “Absorption of a competing technology/competitor” to stop further competion.

There are many claims of anticompetitive behavior, usually levied at successful companies that may not necessarily be true. One of the more publicised and prolonged cases of such claims was targeted at Microsoft Corp., which began in 1998 in The US, and has spread out over Europe. In the claim, Microsoft was accused of using market power to unfairly tip the balance away from its competitors. The software giant was found by the US Supreme Court to have engaged in monopolistic behavior to the detriment of its competitors in 2000, and despite appeals havad been compelled to make reparations which are continuing to the present.

Market power and anti-competitive behavior may help a few who wield it, but overall it has a negative impact on the economic and social front. Since it restricts free growth and profits in the hands of a few people, it is considered unethical, and in the case of Microsoft, indictable.

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