1.
Conflict of interest
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The presence of a conflict of interest is independent of the occurrence of impropriety. Therefore, a conflict of interest can be discovered and voluntarily defused before any corruption occurs. Primary interest refers to the goals of the profession or activity, such as the protection of clients, the health of patients, the integrity of research. These secondary interests are not treated as wrong in and of themselves, applicable statutes or canons of ethics may provide standards for recusal in a given proceeding or matter. Providing that the judge or presiding officer must be free from disabling conflicts of interest makes the fairness of the less likely to be questioned. In the legal profession, the duty of loyalty owed to a client prohibits an attorney from representing any other party with interests adverse to those of a current client. The few exceptions to this rule require informed consent from all affected clients. In some circumstances, a conflict of interest can never be waived by a client, in perhaps the most common example encountered by the general public, the same firm should not represent both parties in a divorce or child custody matter. Found conflict can lead to denial or disgorgement of legal fees, or in some cases, depending upon the law or rules related to a particular organization, the existence of a conflict of interest may not, in and of itself, be evidence of wrongdoing. In fact, for professionals, it is virtually impossible to avoid having conflicts of interest from time to time. A conflict of interest can, however, become a matter, for example. A director or executive of a corporation will be subject to legal liability if a conflict of interest breaches his/her duty of loyalty, there often is confusion over these two situations. Someone accused of a conflict of interest may deny that a conflict exists because he/she did not act improperly, in fact, a conflict of interest can exist even if there are no improper acts as a result of it. Such competing interests can make it difficult to fulfill his or her duties impartially, a conflict of interest exists even if no unethical or improper act results. A conflict of interest can create an appearance of impropriety that can undermine confidence in the internal auditor, the audit activity. A conflict of interest could impair an individuals ability to perform his or her duties and responsibilities objectively, an organizational conflict of interest may exist in the same way as described above, for instance where a corporation provides two types of service to the government and these services conflict. Corporations may develop simple or complex systems to mitigate the risk or perceived risk of a conflict of interest, the influence of the pharmaceutical industry on medical research has been a major cause for concern. In 2009 a study found that a number of academic institutions do not have clear guidelines for relationships between Institutional Review Boards and industry, the official is on both sides of the deal
2.
Due diligence
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Due diligence is an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be an obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for an acquisition. The broker-dealer community quickly institutionalized, as a practice, the conducting of due diligence investigations of any stock offerings in which they involved themselves. Originally the term was limited to public offerings of equity investments, a reasonable investigation focusing on material future matters. An examination being achieved by asking certain key questions, including, how do we buy, how do we structure an acquisition, an investigation of current practices of process and policies. An examination aiming to make an acquisition decision via the principles of valuation, the due diligence process can be divided into nine distinct areas, It is essential that the concepts of valuations be linked into a due diligence process. This is in order to reduce the number of failed mergers, the relevant areas of concern may include the financial, legal, labor, tax, IT, environment and market/commercial situation of the company. Areas of focus in due diligence continue to develop with cybersecurity emerging as an area of concern for business acquirers, Due Diligence has emerged as a separate profession for accounting and auditing experts. With the number and size of penalties increasing, the Foreign Corrupt Practices Act is causing many U. S. institutions to look into how they all of their relationships overseas. This link could be perceived as leading to the bribing of the foreign officials and this process will be performed indefinitely as long as a relationship exists, and usually involves comparing the companies and executives to a database of foreign officials. This process should be performed on all relationships regardless of location and is part of a wider Integrity Management initiative. While financial institutions are among the most aggressive in defining FCPA best practices, manufacturing, retailing, passed on May 25,2011, the OECD member countries agreed to revise their guidelines promoting tougher standards of corporate behavior, including human rights. As part of this new definition, they utilized a new aspect of due diligence that requires a corporation to investigate third party partners for potential abuse of human rights, Human Rights Impact Assessment is a component of this. The UN formalized guidelines for Human Rights Due Diligence on June 16 with the endorsement of Ruggie’s Guiding Principles for Business, Due diligence in civil procedure is the idea that reasonable investigation is necessary before certain kinds of relief are requested. Due diligence is also a concept found in the civil litigation concept of a statute of limitations, in criminal law, due diligence is the only available defense to a crime that is one of strict liability. Once the criminal offence is proven, the defendant must prove on balance that they did everything possible to prevent the act from happening and it is not enough that they took the normal standard of care in their industry – they must show that they took every reasonable precaution. Due diligence is also used in law to describe the scope of the duty of a prosecutor, to take efforts to turn over potentially exculpatory evidence
3.
Competition law
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Competition law is a law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcement, Competition law is known as anti-trust law in the United States, and as anti-monopoly law in China and Russia. In previous years it has known as trade practices law in the United Kingdom. In the European Union, it is referred to as both antitrust and competition law, the history of competition law reaches back to the Roman Empire. The business practices of market traders, guilds and governments have always been subject to scrutiny, since the 20th century, competition law has become global. The two largest and most influential systems of regulation are United States antitrust law and European Union competition law. National and regional competition authorities across the world have formed international support, modern competition law has historically evolved on a country level to promote and maintain fair competition in markets principally within the territorial boundaries of nation-states. National competition law usually does not cover activity beyond territorial borders unless it has significant effects at nation-state level, countries may allow for extraterritorial jurisdiction in competition cases based on so-called effects doctrine. The protection of competition is governed by international competition agreements. These obligations were not included in GATT, but in 1994, with the conclusion of the Uruguay Round of GATT Multilateral Negotiations, the Agreement Establishing the WTO included a range of limited provisions on various cross-border competition issues on a sector specific basis. Competition law, or antitrust law, has three elements, prohibiting agreements or practices that restrict free trading and competition between business. This includes in particular the repression of trade caused by cartels. Banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position, Practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal, and many others. Supervising the mergers and acquisitions of large corporations, including joint ventures. Substance and practice of competition law varies from jurisdiction to jurisdiction, protecting the interests of consumers and ensuring that entrepreneurs have an opportunity to compete in the market economy are often treated as important objectives. In recent decades, competition law has been viewed as a way to better public services. An early example of competition law can be found in Roman law, the Lex Julia de Annona was enacted during the Roman Republic around 50 B. C. To protect the trade, heavy fines were imposed on anyone directly, deliberately
4.
History of competition law
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The history of competition law refers to attempts by governments to regulate competitive markets for goods and services, leading up to the modern competition or antitrust laws around the world today. The earliest records traces back to the efforts of Roman legislators to control price fluctuations, throughout the Middle Ages in Europe, kings and queens repeatedly cracked down on monopolies, including those created through state legislation. The English common law doctrine of restraint of trade became the precursor to modern competition law and this grew out of the codifications of United States antitrust statutes, which in turn had considerable influence on the development of European Community competition laws after the Second World War. Increasingly the focus has moved to international competition enforcement in a globalised economy, laws governing competition law are found in over two millennia of history. Roman Emperors and Mediaeval monarchs alike used tariffs to stabilise prices or support local production, the formal study of competition, began in earnest during the 18th century with such works as Adam Smiths The Wealth of Nations. Different terms were used to describe this area of the law, including practices, the law of monopolies, combination acts. The earliest surviving example of competition laws ancestors appears in the Lex Julia de Annona. To protect the trade, heavy fines were imposed on anyone directly, deliberately and insidiously stopping supply ships. The most legislation came under the Constitution of Zeno of 483 AD which can be traced into Florentine Municipal laws of 1322 and 1325 and it provided for property confiscation and banishment for any trade combinations or joint action of monopolies private or granted by the Emperor. Zeno rescinded all previously granted exclusive rights, justinian I also introduced legislation not long after to pay officials to manage state monopolies. As Europe slipped into the Dark Ages, so did the records of law making until the Middle Ages brought greater expansion of trade in the time of lex mercatoria, legislation in England to control monopolies and restrictive practices were in force well before the Norman Conquest. The Domesday Book recorded that foresteel was one of three forfeitures that King Edward the Confessor could carry out through England, concern for fair prices also led to attempts to directly regulate the market. Under Henry III, an Act was passed in 1266 to fix bread, penalties for breach included amercements, pillory and tumbrel. A fourteenth century statute labelled forestallers as oppressors of the poor, under King Edward III, the Statute of Labourers of 1349 fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. Also under Edward III, the statutory provision in the poetic language of the time outlawed trade combinations. In 1553 King Henry VIII reintroduced tariffs for foodstuffs, designed to stabilise prices in the face of fluctuations in supply from overseas, the legislation read here that whereas, it is very hard and difficult to put certain prices to any such things. The privileges conferred were not abolished until the Municipal Corporations Act 1835, Europe around the 15th century was changing quickly. The new world had just been opened up, overseas trade and plunder was pouring wealth through the international economy, in 1561, a system of Industrial Monopoly Licences, similar to modern patents had been introduced into England
5.
Monopoly
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A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity. The verb monopolise or monopolize refers to the process by which a company gains the ability to raise prices or exclude competitors, in economics, a monopoly is a single seller. In law, a monopoly is an entity that has significant market power, that is. Although monopolies may be big businesses, size is not a characteristic of a monopoly, a small business may still have the power to raise prices in a small industry. A monopoly is distinguished from a monopsony, in there is only one buyer of a product or service. Likewise, a monopoly should be distinguished from a cartel, in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations in one or a few entities have market power and therefore interact with their customers. Monopolies can be established by a government, form naturally, or form by integration, in many jurisdictions, competition laws restrict monopolies. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, patents, copyrights, and trademarks are sometimes used as examples of government-granted monopolies. The government may also reserve the venture for itself, thus forming a government monopoly, There are four basic types of market structures in traditional economic analysis, perfect competition, monopolistic competition, oligopoly and monopoly. A monopoly is a structure in which a single supplier produces, if there is a single seller in a certain market and there are no close substitutes for the product, then the market structure is that of a pure monopoly. Sometimes, there are many sellers in an industry and/or there exist many close substitutes for the goods being produced and this is termed monopolistic competition, whereas in oligopoly the companies interact strategically. Most economic textbooks follow the practice of explaining the perfect competition model. The boundaries of what constitutes a market and what does not are relevant distinctions to make in economic analysis, in a general equilibrium context, a good is a specific concept including geographical and time-related characteristics. Most studies of market structure relax a little their definition of a good, price Maker, Decides the price of the good or product to be sold, but does so by determining the quantity in order to demand the price desired by the firm. High Barriers, Other sellers are unable to enter the market of the monopoly, single seller, In a monopoly, there is one seller of the good, who produces all the output. Therefore, the market is being served by a single company, and for practical purposes. Price Discrimination, A monopolist can change the price or quantity of the product and he or she sells higher quantities at a lower price in a very elastic market, and sells lower quantities at a higher price in a less elastic market
6.
Coercive monopoly
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As a coercive monopoly is securely shielded from possibility of competition, it is able to make pricing and production decisions with the assurance that no competition will arise. It is a case of a non-contestable market, a coercive monopoly has very few incentives to keep prices low and may deliberately price gouge consumers by curtailing production. Also, according to economist Murray Rothbard, a coercive monopolist will tend to perform his service badly and inefficiently, whether coercive monopolies can arise in free market, or whether they require government intervention to institute them is a point of some disagreement. It is argued that without government preventing competition, the firm must keep prices low because if they sustain unreasonably high prices, others, such as some business ethicists, believe that a free market can produce coercive monopolies. Exclusive control of electricity due to government imposed utility status is a coercive monopoly, because users have no choice. Consumers would not have an alternative to electricity from a cheaper competitor. Exclusive control of Coca-Cola would not be a monopoly because consumers have a choice to drink another brand of soda. There is a limit to which the company can raise its prices before profits begin to erode because of the presence of viable substitute goods. Since potential competitors are not able to be so efficient at producing, they are not able to charge a lower, or comparable, price and still be profitable. Hence, competing is possible but doing so is not profitable, whereas, for a coercive monopoly, according to business ethicist, John Hasnas, most take for granted that a free market produces coercive monopolies. Some point out that a monopolist themselves may employ violence to create or maintain a coercive monopoly, some recommend that government create coercive monopolies. This has often been done with electricity, water, telecommunications, a corporation which successfully engages in coercion to the extent that it eliminates the possibility of competition, operates a coercive monopoly. A firm may use illegal or non-economic methods, such as extortion, to achieve, the most famous historical examples of this type of coercive monopoly began in 1920, when the Eighteenth Amendment to the United States Constitution went into effect. This period, called Prohibition, presented lucrative opportunities for organized crime to take over the importation, manufacture, and distribution of alcoholic beverages. There are examples in history where a firm that is not a monopoly is claimed to have a coercive monopoly. For example, in United States v. Microsoft The Plaintiffs Finding of Fact alleged that Microsoft coerced Apple Computer to enter into contracts resulting in the prohibition of competition. Another disputed example, is the case of U. S. v. Aluminum Co. of America in 1945, the court concluded that Alcoa excluded competitors. The ruling is heavily criticized for punishing efficiency and is quoted below and it was not inevitable that it should always anticipate increases in the demand for ingot and be prepared to supply them
7.
Natural monopoly
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Natural monopolies were discussed as a potential source of market failure by John Stuart Mill, who advocated government regulation to make them serve the public good. Two different types of cost are important in microeconomics, marginal cost, the marginal cost is the cost to the company of serving one more customer. In an industry where a monopoly does not exist, the vast majority of industries. Along with this, the average cost of its products decreases and increases, a natural monopoly has a very different cost structure. A natural monopoly has a fixed cost for a product that does not depend on output, but its marginal cost of producing one more good is roughly constant. All industries have costs associated with entering them, often, a large portion of these costs is required for investment. Larger industries, like utilities, require enormous initial investment and this barrier to entry reduces the number of possible entrants into the industry regardless of the earning of the corporations within. A firm with high fixed costs requires a number of customers in order to have a meaningful return on investment. This is where economies of scale become important, since each firm has large initial costs, as the firm gains market share and increases its output the fixed cost is divided among a larger number of customers. Therefore, in industries with large initial investment requirements, average total cost declines as output increases over a larger range of output levels. If that ideal size is large enough to supply the whole market, with this knowledge, no firms attempt to enter the industry and an oligopoly or monopoly develops. William Baumol provided the current formal definition of a monopoly where “n industry in which multi-firm production is more costly than production by a monopoly”. He linked the definition to the concept of subadditivity, specifically of the cost function. Baumol also noted that for a firm producing a product, scale economies were a sufficient. The original concept of monopoly is often attributed to John Stuart Mill. In Principles of Political Economy Mill criticised Smiths neglect of an area that could explain wage disparity, mills development of the idea is that what is true of labour is true of capital. All the natural monopolies which produce or aggravate the disparities in the remuneration of different kinds of labour, operate similarly between different employments of capital. A trade may also, from the nature of the case, be confined to so few hands and it is well known that even among so numerous a body as the London booksellers, this sort of combination long continued to exist
8.
Barriers to entry
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Because barriers to entry protect incumbent firms and restrict competition in a market, they can contribute to distortionary prices and are therefore most important when discussing antitrust policy. Barriers to entry often cause or aid the existence of monopolies or give companies market power, various conflicting definitions of barrier to entry have been put forth since the 1950s, and there has been no clear consensus on which definition should be used. This has caused confusion and likely flawed policy. In 1968, George Stigler defined an entry barrier as A cost of producing that must be borne by a firm which seeks to enter an industry but is not borne by firms already in the industry. McAfee et al. criticized the phrase is not borne as being confusing, in 1979, Franklin M. Fisher gave the definition anything that prevents entry when entry is socially beneficial. McAfee et al. criticized this along the lines as Bains definition. In 1994, Dennis Carlton and Jeffrey Perloff gave the definition, a primary barrier to entry is a cost that constitutes an economic barrier to entry on its own. An ancillary barrier to entry is a cost that does not constitute a barrier to entry by itself, an antitrust barrier to entry is a cost that delays entry and thereby reduces social welfare relative to immediate but equally costly entry. This contrasts with the concept of economic barrier to entry defined above, as it can delay entry into a market, all economic barriers to entry are antitrust barriers to entry, but the converse is not true. The following examples fit all the definitions of primary economic barriers to entry. Distributor agreements - Exclusive agreements with key distributors or retailers can make it difficult for manufacturers to enter the industry. Intellectual property - Potential entrant requires access to equally efficient production technology as the combatant monopolist in order to enter a market. Patents give a firm the right to stop other firms producing a product for a given period of time. Patents are intended to encourage invention and technological progress by guaranteeing proceeds as an incentive, similarly, trademarks and servicemarks may represent a kind of entry barrier for a particular product or service if the market is dominated by one or a few well-known names. Restrictive practices, such as air transport agreements that make it difficult for new airlines to obtain landing slots at some airports, supplier agreements - Exclusive agreements with key links in the supply chain can make it difficult for other manufacturers to enter an industry. Switching barriers - At times, it may be difficult or expensive for customers to switch providers Tariffs - Taxes on imports prevent foreign firms from entering into domestic markets. Taxes – Smaller companies typical fund expansions out of retained profits so high tax rates hinder their growth, larger firms may be better able to avoid high taxes through either loopholes written into law favoring large companies or by using their larger tax accounting staffs to better avoid high taxes. Zoning - Government allows certain economic activity in specified land areas but excludes others, the following examples are sometimes cited as barriers to entry, but dont fit all the commonly cited definitions of a barrier to entry
9.
Market power
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In economics and particularly in industrial organization, market power is the ability of a firm to profitably raise the market price of a good or service over marginal cost. In perfectly competitive markets, market participants have no market power, a firm with total market power can raise prices without losing any customers to competitors. Market participants that have market power are sometimes referred to as price makers or price setters. Significant market power occurs when prices exceed marginal cost and long run average cost, a firm with market power has the ability to individually affect either the total quantity or the prevailing price in the market. Price makers face a downward-sloping demand curve, such that price increases lead to a quantity demanded. The decrease in supply as a result of the exercise of power creates an economic deadweight loss which is often viewed as socially undesirable. As a result, many countries have anti-trust or other legislation intended to limit the ability of firms to market power. Such legislation often regulates mergers and sometimes introduces a judicial power to compel divestiture, a firm usually has market power by virtue of controlling a large portion of the market. In extreme cases—monopoly and monopsony—the firm controls the entire market, however, market size alone is not the only indicator of market power. Highly concentrated markets may be if there are no barriers to entry or exit. Market power gives firms the ability to engage in unilateral anti-competitive behavior, some of the behaviours that firms with market power are accused of engaging in include predatory pricing, product tying, and creation of overcapacity or other barriers to entry. The Lerner index and Herfindahl index may be used to market power. When several firms control a significant share of sales, the resulting market structure is called an oligopoly or oligopsony. An oligopoly may engage in collusion, either tacit or overt, a group of firms that explicitly agree to affect market price or output is called a cartel. Monopoly power is an example of failure which occurs when one or more of the participants has the ability to influence the price or other outcomes in some general or specialized market. The most commonly discussed form of power is that of a monopoly, but other forms such as monopsony. A well-known example of market power is Microsofts market share in PC operating systems. The United States v. Microsoft case dealt with an allegation that Microsoft illegally exercised its power by bundling its web browser with its operating system
10.
Relevant market
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In competition law, a relevant market is a market in which a particular product or service is sold. It is the intersection of a relevant product market and a relevant geographic market, the notion of relevant market is used in order to identify the products and undertakings which are directly competing in a business. Therefore, the relevant market is the market where the competition takes place, the enforcement of the provisions of competition law would be not possible without referring to the market where competition takes place. For all these reasons it is necessary to define the relevant markets for the different cases which fall under the Law, the relevant market contains all those substitute products and regions which provide a significant competitive constraint on the products and regions of interest. This can only be if the products in this market are not subject to significant competitive constraints by products outside that market. Since 1980, the DOJ and the FTC have used these guidelines to convince courts to adopt a more explicitly economic approach to antitrust policy, a relevant market comprises a product or group of products and the geographic area in which these products are produced and/or traded. Therefore, the relevant market has two components, the market and the geographic market. The relevant product market is determined according to three criteria, Demand-side substitution, Demand-side substitution takes place when consumers switch from one product to another in response to a change in the relative prices of the products. When examining the responses of consumers, it is the response of the marginal consumer. This is generally done using the SSNIP-test, sometimes consumers may be unable to react to a price increase, nevertheless, producers may be able to do so by for example, increasing their supply to satisfy the demand of these consumers. In this case, those producers with the ability for supply-side substitution should be included in the relevant market, the geographic market is an area in which the conditions of competition applying to the product concerned are the same for all traders. The same factors used in delineating relevant product markets should be used to define the relevant geographic market, an interesting aspect to which competition authorities look at are transport costs, given that high transport costs may explain why trade between two regions is economically infeasible. Bishop, Simon and Mike Walker, The Economics of EC Competition Law, bishop, Simon and M. Darcey, A Relevant Market Is Something Worth Monopolising
11.
Merger control
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Merger control refers to the procedure of reviewing mergers and acquisitions under antitrust / competition law. Over 60 nations worldwide have adopted a regime providing for merger control, national or supernational competition agencies such as the EU European Commission or the US Federal Trade Commission are normally entrusted with the role of reviewing mergers. Merger control regimes are adopted to prevent anti-competitive consequences of concentrations, accordingly, most merger control regimes normally provide for one of the following substantive tests, Does the concentration significantly impede effective competition. Does the concentration substantially lessen competition, does the concentration lead to the creation or strengthening of a dominant position. In practice most merger control regimes are based on similar underlying principles. In simple terms, the creation of a dominant position would result in a substantial lessening of or significant impediment to effective competition. The large majority of modern merger control regimes are of an ex-ante nature, the vast majority of significant competition issues associated with mergers arises in horizontal mergers. A horizontal merger is one between parties that are competitors at the level of production and/or distribution of a good or service. There are two types of anticompetitive effects associated with mergers, unilateral effects and coordinated effects. In homogeneous markets, unilateral effects can be pronounced when two significant competitors merge to create a large, dominant player with only a few or no other competitors. In these markets, an important role in the assessment is played by market shares, in differentiated markets, unilateral effects tend to arise particularly when the two merging companies have highly substitutable goods. Such a price increase does not depend on the firm being the dominant player in the market. The likelihood and magnitude of such an increase will instead depend on the substitutability of the products supplied by the two firms – the closer the substitute, the greater the unilateral effects. As in the case of unilateral effects, the most common form of coordinated effects is in the case of horizontal mergers, the task is to identify what factors are likely to lead to coordination taking place between firms post-merger. Under the European Union merger control regime, in order for coordinated effects to arise the so-called Airtours criteria have to be fulfilled. According to the Airtours criteria, coordination is more likely to emerge in markets where it is simple to reach a common understanding on the terms of coordination. In addition, three conditions are necessary for coordination to be sustainable, first, the coordinating firms must be able to monitor to a sufficient degree whether the terms of coordination are being adhered to. Second, discipline requires that there is form of credible deterrent mechanism that can be activated if deviation is detected
12.
Anti-competitive practices
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Anti-competitive practices are business, government or religious practices that prevent or reduce competition in a market. These can include, Dumping, where a company sells a product in a market at a loss. Though the company money for each sale, the company hopes to force other competitors out of the market. Exclusive dealing, where a retailer or wholesaler is obliged by contract to purchase from the contracted supplier. Price fixing, where companies collude to set prices, effectively dismantling the free market, limit pricing, where the price is set by a monopolist at a level intended to discourage entry into a market. Tying, where products that arent naturally related must be purchased together, resale price maintenance, where resellers are not allowed to set prices independently. Religious / minority group doctrine, where businesses must apply tribute to a significant part of the community in order to engage in trade with that community, digital rights management which prevents owners from selling used media, as would normally be allowed by the first sale doctrine. It is usually difficult to practice anti-competitive practices unless the parties involved have significant market power or government backing, monopolies and oligopolies are often accused of, and sometimes found guilty of, anti-competitive practices. For this reason, company mergers are often examined closely by government regulators to avoid reducing competition in an industry, some people believe that the realities of the marketplace are sometimes more complex than this or similar theories of competition would suggest. For example, oligopolistic firms may achieve economies of scale that would elude smaller firms, again, very large firms, whether quasi-monopolies or oligopolies, may achieve levels of sophistication e. g. in business process and/or planning that smaller firms would not easily attain. There are undoubtedly industries in which the levels of investment are so high that only extremely large firms that may be quasi-monopolies in some areas of their businesses can survive. Many governments regard these market niches as natural monopolies, and believe that the inability to full competition is balanced by government regulation. However, the companies in these niches tend to believe that they should avoid regulation, in some cases, anti-competitive behavior can be difficult to distinguish from competition. For instance, a distinction must be made between product bundling, which is a market strategy, and product tying, which violates anti-trust law. Some advocates of laissez-faire capitalism reject the term, seeing all anti-competitive behavior as forms of competition that benefit consumers
13.
Monopolization
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Monopolization is an offense under Section 2 of the American Sherman Antitrust Act 1890. It has a legal meaning, which is parallel to the abuse of a dominant position in EU competition law. The Sherman Act 1890 §2 states that any person who shall monopolize, any part of the trade or commerce among the several states, or with foreign nations shall be deemed guilty of a felony. Section 2 also forbids attempts to monopolize and conspiracies to monopolize, generally this means that corporations may not act in ways that have been identified as contrary to precedent cases. Under long-established precedent, the offense of monopolization under Section 2 has two elements, first, that the defendant possesses monopoly power in a properly-defined market and second that the defendant obtained or maintained that power through conduct deemed unlawfully exclusionary. The mere fact that conduct disadvantages rivals does not, without more, instead, such conduct must exclude rivals on some basis other than efficiency. For several decades courts drew the line between efficient and inefficient exclusion by asking whether the conduct under scrutiny was competition on the merits. Courts equated such competition on the merits with unilateral conduct such as product improvement, the realization of economies of scale, innovation, such conduct was lawful per se, since it constituted the normal operation of economic forces that a free economy should encourage. At the same time, courts condemned as unlawful exclusion tying contracts, exclusive dealing and this distinction reflected the economic theory of the time, which saw no beneficial purposes for what Professor Oliver Williamson has called non-standard contracts. More recently, courts have retained the safe harbor for competition on the merits, moreover, the Supreme Court has clarified the standards governing claims of predatory pricing. At the same time, they have relaxed the standards governing other conduct by monopolists, areeda, Philip, Turner, Donald F. Predatory Pricing and Related Practices Under Section 2 of the Sherman Act. Lopatka, John E. Page, William H. Monopolization, Innovation, Monopolization, Exclusion, and the Theory of The Firm. Identifying Monopolists Exclusionary Conduct Under Section 2 of the Sherman Act, a New Structured Rule of Reason Approach for High-Tech Markets
14.
Collusion
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It is an agreement among firms or individuals to divide a market, set prices, limit production or limit opportunities. It can involve wage fixing, kickbacks, or misrepresenting the independence of the relationship between the colluding parties, in legal terms, all acts effected by collusion are considered void. In the study of economics and market competition, collusion takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place within the structure of oligopoly. Cartels are a case of explicit collusion. Collusion which is overt, on the hand, is known as tacit collusion. However, if firms collude to all prices, loss of sales is minimized. This benefits the colluding firms at the cost of efficiency to society, one variation of this traditional theory is the theory of kinked demand. Several examples of collusion in the United States include, Market division and price-fixing among manufacturers of electrical equipment in the 1960s. An attempt by Major League Baseball owners to restrict players salaries in the mid-1980s, Market division and output determination of livestock feed additive, called lysine, by companies in the US, Japan and South Korea in 1996, Archer Daniels Midland being the most notable of these. Chip dumping in poker or any other high stake card game and this allows each firm to see how and why every other firm is pricing their products. If the practice of the industry causes more complicated pricing, which is hard for the consumer to understand and this causes industries to have essentially the same prices and compete on advertising and image, something theoretically as damaging to consumers as normal price fixing. There can be significant barriers to collusion, in any given industry, these may include, The number of firms, As the number of firms in an industry increases, it is more difficult to successfully organize, collude and communicate. Cost and demand differences between firms, If costs vary significantly between firms, it may be impossible to establish a price at which to fix output. Cheating, There is considerable incentive to cheat on collusion agreements, although lowering prices might trigger price wars and this phenomenon is frequently referred to as chiseling. Potential entry, New firms may enter the industry, establishing a new baseline price, Economic recession, An increase in average total cost or a decrease in revenue provides incentive to compete with rival firms in order to secure a larger market share and increased demand. Anticollusion legal framework and collusive lawsuit, collusive lawsuit Conscious parallelism Corporate crime Baseball collusion Cartel Vives, X. Oligopoly pricing, MIT Press, Cambridge MA Tirole, J. The Theory of Industrial Organization, MIT Press, Cambridge MA Tirole, J. Hierarchies and Bureaucracies, Journal of Law Economics and Organization, vol
15.
Cartel
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A cartel is a group of formally independent producers whose goal is to increase their collective profits by means of price fixing, limiting supply, or other restrictive practices. Cartels typically control selling prices, but some are organized to control the prices of purchased inputs, antitrust laws forbid cartels, however, they continue to exist nationally and internationally, openly and secretly, formally and informally. Note that an entity that holds a monopoly by this definition cannot be a cartel. Cartels usually occur in oligopolies, where there are a number of sellers. Bid rigging is a type of cartel. People of the same trade seldom meet together, even for merriment and diversion, private international cartels had an average price increase of 28%, whereas domestic cartels averaged 18%. Less than 10% of all cartels in the failed to raise market prices. This has caused many cartels that attempt to set prices to be unsuccessful in the long term. Empirical studies of 20th century cartels have determined that the duration of discovered cartels is from 5 to 8 years. However, once a cartel is broken, the incentives to form the cartel return, publicly-known cartels that do not follow this cycle include, by some accounts, the Organization of the Petroleum Exporting Countries. Price fixing is often practiced internationally, when the agreement to control price is sanctioned by a multilateral treaty or protected by national sovereignty, no antitrust actions may be initiated. Examples of such price fixing include oil whose price is partly controlled by the supply by OPEC countries, also international airline tickets have prices fixed by agreement with the IATA, a practice for which there is a specific exception in antitrust law. International price fixing by private entities can be prosecuted under the antitrust laws of more than 100 countries, examples of prosecuted international cartels are lysine, citric acid, graphite electrodes and bulk vitamins. OPEC, As its name suggests, OPEC is organized by sovereign states and it cannot be held to antitrust enforcement in other jurisdictions by virtue of the doctrine of state immunity under public international law. However, members of the group do frequently break rank to increase production quotas, an example of a new international cartel is the one created by the members of the Asian Racing Federation and documented in the Good Neighbor Policy signed on September 1,2003. Bishop, Simon and Mike Walker, The Economics of EC Competition Law, global Price Fixing, 2nd Paperback Edition. Antitrust and global capitalism 1930–2004, New York 2006, hexner, Ervin, The International Steel Cartel, Chapel Hill 1943. Ein Beitrag zur Frage der Organisation der Volkswirtschaft, Innsbruck 1883, levenstein, Margaret C. and Valerie Y
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Price fixing
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The defining characteristic of price fixing is any agreement regarding price, whether expressed or implied. Price fixing requires a conspiracy between sellers or buyers, the purpose is to coordinate pricing for mutual benefit of the traders. Price fixing is permitted in some markets but not others, where allowed, in neo-classical economics, price fixing is inefficient. The anti-competitive agreement by producers to fix prices above the market price transfers some of the surplus to those producers. International price fixing by private entities can be prosecuted under the antitrust laws of many countries, examples of prosecuted international cartels are those that controlled the prices and output of lysine, citric acid, graphite electrodes, and bulk vitamins. In the United States, price fixing can be prosecuted as a federal offense under section 1 of the Sherman Antitrust Act. Criminal prosecutions may only be handled by the U. S. Department of Justice, many state attorneys general also bring antitrust cases and have antitrust offices, such as Virginia, New York, and California. Private individuals or organizations may file lawsuits for damages for antitrust violations. Under American law, exchanging prices among competitors can also violate the antitrust laws and this includes exchanging prices with either the intent to fix prices or if the exchange affects the prices individual competitors set. Proof that competitors have shared prices can be used as part of the evidence of a price fixing agreement. Experts generally advise that competitors avoid even the appearance of agreeing on price, since 1997, US Courts have divided price fixing into two categories, vertical and horizontal maximum price fixing. Vertical price fixing includes an attempt to control the price of its product at retail. Also in 2008, the defendants of United States v LG Display Co, United States v. Chunghwa Picture Tubes, and United States v. In Canada, it is a criminal offense under section 45 of the Competition Act. Bid rigging is considered a form of fixing and is illegal in both the United States and Canada. In the United States, agreements to fix, raise, lower, stabilize and it does not matter if the price agreed upon is reasonable or for a good or altruistic cause or if the agreement is unspoken and tacit. Although price fixing usually means sellers agreeing on price, it can include agreements among buyers to fix the price at which they will buy products. Price fixing is illegal in Australia under the Competition and Consumer Act 2010 which have similar prohibitions to the US
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Bid rigging
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Bid rigging is a form of fraud in which a commercial contract is promised to one party even though for the sake of appearance several other parties also present a bid. This form of collusion is illegal in most countries and it is a form of price fixing and market allocation, often practiced where contracts are determined by a call for bids, for example in the case of government construction contracts. Bid rigging almost always results in harm to the agency which is seeking the bids, and to the public. These are some very common bid rigging practices, Bid suppression occurs where some of the conspirators agree not to submit a bid so that another conspirator can win the contract. Phantom Bids are false bids taken by an auctioneer for the purpose of tricking a legitimate bidder into bidding more than he would have bid otherwise, the auctioneer hires Shills to call out the phantom bids. Buy-Back is the strategy whereby the auctioneer or seller bids on a lot and this is fraud if the auction is advertised as an Absolute Auction, meaning there are no reserve bids. Phantom auctions The Bank will tentatively auction a foreclosed home, if the reserve bids are not met, the home will be updated as never was available for auction even though bids were received. Some houses will be auctioned at prices and the auctions will be closed before the auction was formally announced. Investors rush to get in their bids before the house is technically up for auction. Bidders fear losing options so it causes irrational feeding frenzy in the bidders, if bidders dont make the target bids, then the item was never available for auction. Banks do this if they unloaded all their toxic assets at once. These forms of bid rigging are not mutually exclusive of one another, for example, if one member of the bidding ring is designated to win a particular contract, that bidders conspirators could avoid winning either by not bidding, or by submitting a high bid. The typical objective of bid rigging is to enable the party to obtain contracts at uncompetitive prices. In this way, they share the spoils among themselves, Bid rigging is an illegal practice under the criminal or competition laws of most developed countries. Depending on the jurisdiction, it is punishable by fines, imprisonment or both, Bid rigging fraud can be resisted naturally by either side choosing to not participate in the auction. Bid rigging fraud by bidders can be resisted by auction houses by no longer putting items up for auction, Bid rigging fraud by auction houses can be resisted by bidders who no longer bid, punishing crooked auction houses. The temptation for one side to rig the bids for tremendous personal gain is always present, in the United States, bid rigging is a felony criminal offense under Section 1 of the Sherman Act. Even so, bid rigging is still rampant in the industry, auto sale auctions
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Product bundling
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In marketing, product bundling is offering several products for sale as one combined product. It is a feature in many imperfectly competitive product markets. Industries engaged in the practice include telecommunications, financial services, health care, a software bundle might include a word processor, spreadsheet, and presentation program into a single office suite. The cable television industry often bundles channels into a single tier, the fast food industry combines separate food items into a complete meal. A bundle of products may be called a package deal, a compilation or an anthology, price bundling plays an increasingly important role in many industries and some companies even build their business strategies on bundling. In a bundle pricing, companies sell a package or set of goods or services for a lower price than they would if the customer bought all of them separately. Pursuing a bundle pricing strategy allows you to increase your profit by giving customers a discount, bundling is most successful when, There are economies of scale in production. There are economies of scope in distribution, marginal costs of bundling are low. Consumers appreciate the resulting simplification of the decision and benefit from the joint performance of the combined product. Consumers have heterogeneous demands and such demands for different parts of the product are inversely correlated. For example, assume consumer A values word processor at $100 and spreadsheet processor at $60, while consumer B values word processor at $60, seller can generate maximum revenue of only $240 by setting $60 price for each product—both consumers will buy both products. Revenue cannot be increased without bundling because as seller increases the price above $60 for one of the goods, with bundling, seller can generate revenue of $320 by bundling the products together and selling the bundle at $160. Product bundling is most suitable for volume and high margin products. Venkatesh and Mahajan reviewed the research on design and pricing in 2009. Mixed-leader bundling is a variant of leader bundling with the possibility of buying the leader product on its own. Bundling in political economy is a type of product bundling in which the product is a candidate in an election who markets his bundle of attributes, software which is pre-installed on a new computer is an example of bundled software. A pack-in game is a form of bundled software, early microcomputer companies varied in their decision to bundle software. Compaq, by contrast, did not bundle software, stating that You remove the freedom from the dealers to really merchandise when you bundle in software, why should you be constrained to use the software that comes with a piece of hardware
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Tying (commerce)
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Tying is the practice of selling one product or service as a mandatory addition to the purchase of a different product or service. In legal terms, a tying sale makes the sale of one good to the de facto customer conditional on the purchase of a second distinctive good, tying is often illegal when the products are not naturally related. It is related to but distinct from freebie marketing, a method of giving away one item to ensure a continual flow of sales of another related item. Some kinds of tying, especially by contract, have historically regarded as anti-competitive practices. The basic idea is that consumers are harmed by being forced to buy a good in order to purchase a good they actually want. The company doing this bundling may have a large market share so that it may impose the tie on consumers. The tie may also harm other companies in the market for the tied good, one effect of tying can be that low quality products achieve a higher market share than would otherwise be the case. Tying may also be a form of discrimination, people who use more razor blades, for example. Though this may improve overall welfare, by giving more consumers access to the market, tying may also be used with or in place of patents or copyrights to help protect entry into a market, discouraging innovation. Tying is often used when the supplier makes one product that is critical to many customers, by threatening to withhold that key product unless others are also purchased, the supplier can increase sales of less necessary products. In the United States, most states have laws against tying, in addition, the U. S. Department of Justice enforces federal laws against tying through its Antitrust Division. Horizontal tying is the practice of requiring consumers to pay for a product or service together with the desired one. A hypothetical example would be for Bic to sell its pens only with Bic lighters, vertical tying is the practice of requiring customers to purchase related products or services together, from the same company. For example, a company might mandate that its automobiles could only be serviced by its own dealers, in an effort to curb this, many jurisdictions require that warranties not be voided by outside servicing, for example, see the Magnuson-Moss Warranty Act in the United States. Certain tying arrangements are illegal in the United States under both the Sherman Antitrust Act, and Section 3 of the Clayton Act, tying may be the action of several companies as well as the work of just one firm. More recently, the Court has eliminated any presumption of market power based solely on the fact that the product is patented or copyrighted. In recent years, changing business practices surrounding new technologies have put the legality of tying arrangements to the test, the tying of Apple products is an example of commercial tying that has caused recent controversy. When Apple initially released the iPhone on June 29,2007, to enforce this exclusivity, Apple employed a type of software lock that ensured the phone would not work on any network besides AT&Ts
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Essential facilities doctrine
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The essential facilities doctrine is a legal doctrine which describes a particular type of claim of monopolization made under competition laws. In general, it refers to a type of behavior in which a firm with market power uses a bottleneck in a market to deny competitors entry into the market. It is closely related to a claim for refusal to deal, the doctrine has its origins in United States law, but it has been adopted into the legal systems of the United Kingdom, Australia, South Africa, and the European Union. S. Supreme Courts ruling in Verizon v. Trinko,540 U. S.398, in effect added a fifth element and these elements are difficult for potential plaintiffs to establish for several reasons. It is quite difficult for a plaintiff to demonstrate that a facility is essential to entry into and/or competition within the relevant market. The plaintiff must demonstrate that the facility must be something so indispensable to entry or competition that it would be impossible for smaller firms to compete with the market leader. Likewise, the plaintiff must show that compelling the dominant firm to permit others to use the facility would not interfere with the ability of the dominant firm to serve its own customers. The first notable case to address the implications of an essential facility was the Supreme Courts judgment in United States v. Terminal Railroad Association,224 U. S.383. A group of railroads controlling all railway bridges and switching yards into and out of St. Louis prevented competing railway companies from offering transportation to, the court held it to be an illegal restraint of trade. In Lorain Journal Co. v. United States,342 U. S.143, 146-49, The Lorain Journal was the local business doing news. The case was that refusing to place an ad for the customers of a radio station was a Sherman Act violation. In the end, the court accepted an offer to accept the advertisements. Otter Tail Power Co. v. United States,410 U. S, hecht v. Pro Football where potential American Football League franchise did not show they needed Washingtons RFK Stadium, the essential facilities doctrine was not met. There is controversy about what constitutes an essential facility. For example, it is possible for a court to apply the doctrine in a case where one competitor refuses to sell materials protected by copyright or patent to potential competitors, competition law Essential patent Sullivan, E. Thomas, and Hovenkamp, Herbert. Antitrust Law, Policy, and Procedure, Cases, Materials, and Problems, Fifth Edition
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Exclusive dealing
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Exclusive dealing can be a barrier to entry. In Australia, one form of exclusive dealing – known as third line forcing – is prohibited per se, tied petrol stations that only deal with one petroleum supplier. Franchisees forced to buy product from a host company instead of a local provider, – a policy that any shopkeeper voting against the popular candidate would lose the custom of non-voters of an opposite persuasion. Anti-competitive practices Competition policy Fair Trading Act Vertical restraints
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Conscious parallelism
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Conscious parallelism is a term used in competition law to describe pricing strategies among competitors in an oligopoly that occurs without an actual agreement between the players. Instead, one competitor will take the lead in raising or lowering prices, the others will then follow suit, raising or lowering their prices by the same amount, with the understanding that greater profits result. Nevertheless, it is hard to prosecute because it may occur without any collusion between the competitors. The term has also used to describe industry-wide assumption of terms other than price. Price leadership Predatory pricing Laissez-faire Capitalism
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Predatory pricing
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Theoretically if competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business. The so called predatory merchant then theoretically has fewer competitors or is even a de facto monopoly, nowadays predatory pricing is considered anti-competitive in many jurisdictions and is illegal under competition laws. However, it can be difficult to prove that prices dropped because of predatory pricing rather than legitimate price competition. In any case, competitors may be out of the market before the case is ever heard. In the short term, predatory pricing through sharp discounting reduces profit margins, as would a price war, yet businesses may engage in predatory pricing as a longer term strategy. Competitors who are not as stable or strong may suffer even greater loss of revenue or reduced profits. After the weaker competitors are driven out, the business can raise prices above competitive levels. The predator hopes to generate revenues and profits in the future that will more than offset the losses it incurred during the predatory pricing period. This is known as recoupment, but two recent decisions by the courts, Tetra Pak II and Wanadoo stated that this is not necessary for a finding of predatory pricing and this is a short-term strategy - the predator undergoes short-term pain for long-term gain. Therefore, for the predator to succeed, it must have sufficient strength to endure the initial lean period, there must be substantial barriers to entry that prevent the re-appearance of competitors when the predator raises prices. But the strategy may fail if competitors are stronger than expected, or are driven out, in either case, this forces the predator to prolong or abandon the price reductions. The strategy may fail if the predator cannot endure the short-term losses. So the predator should hope this strategy to succeed only when it is stronger than its competitors. The barriers prevent new entrants to the market replacing others driven out, but Dows founder Herbert Dow simply purchased the cheap German product and sold it back to Europe at a profit. In many countries there are legal restrictions upon using this pricing strategy and it may not be technically illegal, but have severe restrictions. In 2007, amendments to the Trade Practices Act 1974 created a new threshold test to prohibit those engaging in predatory pricing and this was made in a move to protect smaller businesses from situations where there are larger players, but each has market power. Section 50 of the Competition Act, which criminalized predatory pricing, has been repealed and replaced by sections 78 and 79, which deal with the matters civilly. Section 78 of the Competition Act is prohibits companies from the products at unreasonably low prices designed to facilitate or with the effect of eliminating competition or a competitor
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Copyright misuse
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The doctrine forbids the copyright owner from attempting to extend the effect or operation of copyright beyond the scope of the statutory right. Copyright misuse is not a defense set forth in the federal Copyright Act but is instead founded in federal case law derived from the patent misuse doctrine. One of the earliest copyright misuse precedents is a case in the Minnesota Federal District Court, improper behavior that may lead to a finding of copyright misuse includes anti-competitive activity. One notable exception is the Federal Circuits decision in Princo Corporation vs. International Trade Commission, in that case, Princo had licensed patents from Philips to use data encoding technology, but eventually stopped paying for use of the patent. The court disagreed, finding Princo liable for infringement because the antitrust violation was seen as irrelevant to the original patent, similar principles might condemn a restriction against exercise of reverse engineering, fair use, or conduct protected under the First Amendment. Patent misuse Copyfraud Kai Puolamäki, activist against copyright misuse in Finland
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International Competition Network
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The International Competition Network is an informal, virtual network that seeks to facilitate cooperation between competition law authorities globally. It was established in 2001 after the publication of a Final Report of the International Competition Policy Advisory Committee to the US Attorney General and it comprised 132 member states from 120 competition jurisdiction exclusively devoted to international competition enforcement. Its first annual conference was held in Naples, Italy in September 2002, with representatives from 59 countries, the second conference was in June 2003 in Merida, Mexico. Working groups review different policy areas, such as mergers, or competition advocacy, the last annual conference was hosted by Competition Commission of Singapore in April 2016. The upcoming annual conference will be hosted by Portuguese Competition Authority in May 2017 and it will be hosted by Competition Commission of India in March - April 2018 at New Delhi
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Competition regulator
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In addition to such agencies there is often another body responsible for formulating competition policy. Many nations implement competition laws, and there is agreement on acceptable standards of behavior. The degree to which countries enforce their competition policy varies substantially, Competition regulators may also regulate certain aspects of mergers and acquisitions and business alliances and regulate or prohibit cartels and monopolies. Other government agencies may have responsibilities in relation to aspects of law which affect companies. Regulators may form supranational or international alliances like the ECA, the ICN, Competition law Competition policy Consumer protection Transparency Transparency Federal Trade Commission. Competition & Consumer Protection Authorities Worldwide
