Pitfalls of Dollar-Cost Averaging
In the previous article, we learned about what dollar-cost averaging is. We also learned about some of the benefits that this strategy has to offer. Many successful retail investors have hailed this strategy to be the most important factor that has contributed to their success. However, that does not mean that the dollar cost averaging […]
Perception: Introduction to the Perceptual Process
Perception which is derived from the term “Percept” refers to a series of processes which we have to undergo to make sense of the stimuli which we encounter mentally by organization and interpretation of information about the environment we live in or are subjected to. Sensory receptors detect the stimuli or the sensory information and […]
Role of Motivation in Employee Retention
Employee retention involves various steps taken to retain an employee who wishes to move on. An employee must find his job challenging and as per his interest to excel at work and stay with the organization for a longer period of time. The management plays an important role in retaining the talented employees who are […]
Gathering Information and Measuring Market Demand
In this dynamic market with the free flow of information and innovative marketing programs, needs and wants of consumers are always changing. As per capita income increases consumers are willing to explore more alternatives for purchase decision. Companies should be aware of changing situation all the time to take the right decision. This calls for […]
What Is Hyperinflation ?
Hyperinflation is what, in layman terms can be called as the economic equivalent of doomsday. Modern societies have become more and more accustomed to having inflation in their daily lives. This has been the case ever since the world went off the gold standard at the “Bretten Woods Conference” and almost all countries worldwide accepted […]
During the 19th century, the robber barons were dominating the American economy. A handful of people had more wealth and power than the entire nation. It is for this reason that they would collude with each other to keep everyone else at bay. These robber barons were depriving everybody else of fair opportunity as a result of this collusion. To prevent this from happening, the antitrust laws were created. The laws were relevant about 150 years ago. However, today these laws hamper the working of free enterprises. In this article, we will understand the major problems with these laws:
One of the stated functions of antitrust laws is to ensure that coercive monopolies are not established in industries. The underlying belief is that of these big organizations are allowed to have a free run the end result will be the formation of monopolies which will overcharge the consumers. The problem with this belief is that it is just not true.
The reality is that monopolies cannot be formed in a free market no matter how big a company gets. Monopolies need some form of regulation which prevents the entry of new competitors in the market. This entry barrier can only be provided by the government. Hence, it would be safe to say that in the absence of government, there can be no monopolies at all. The whole antitrust act, therefore, seems like a sham. If the government really wants to prevent the rise of monopolies, they must abolish regulations which create entry barriers in free markets.
Antitrust laws are extremely vague. Bureaucrats can make them look like whatever they want to. For instance, if a company is charging a high price for its product, they can make it look like monopoly overcharging. On the other hand, if they charge the same price as their competitors, bureaucrats can make it appear like a case of collusion amongst competitors. Similarly, if the company charges prices which are lower than the competition, they can be accused of predatory pricing.
The laws fail to clearly define what constitutes an antitrust violation. Instead, the onus is left on the bureaucrat who could be using the government given authority to fleece these organizations.
There is nothing wrong with an organization increasing in size. Big organizations have always been more efficient. This phenomenon is known as economies of scale. Antitrust laws prevent organizations from achieving economies of scale. Many mergers and acquisitions have been disrupted by these antitrust laws. It shouldn’t be illegal to buy out another company if a fair price is being paid. By preventing mergers and acquisitions, antitrust laws impede the most efficient arrangement of capital. These laws protect inefficient managers at the cost of the greater economic good.
Markets are the most effective mechanism known to mankind. Consumer needs can be best met by free markets. Any alternative is always inferior. However, it seems like the government officials do not believe this argument. They believe that they somehow understand the interests of the consumer better than the consumer does. They also believe that their utopian regulations and expensive law enforcement mechanisms will ensure that the interests are served in the best possible way. The problem is that consumers don’t have a say in this process. They elect a government once every four years. However, they vote for products each time they go to a market. Antitrust laws subvert the market mechanism.
Any behavior which can be considered to be predatory and monopolistic is temporary at best. For instance, a company can only engage in predatory pricing for a limited amount of time. Sooner or later, they will run out of money, and the free market will ensure that the competition emerges again. Also, since the monopoly would have bled money for a long time, it would be considerably weaker. It is impossible for corporations to create entry barriers on their own.
It is only with the power of law that special regulations can be passed. These special regulations are the ones that rule out the competition. Also, it needs to be noted that the big organizations do not need to do any work. The government keeps the competition at bay on their behalf. This is a system based on cronyism and favoritism. Hence, it inevitably boils down to a complex web of collusion and corruption which sacrifice consumer interests for personal profits.
The underlying objective of a company is to earn maximum profits and grow as big as it can. The problem with antitrust laws is that it prevents the company from growing beyond a certain point. Hence, the company with the maximum resources, which can invest the maximum amount, is prohibited from growing. As a result, technological development stagnates. Also, since competition is restricted by antitrust laws, innovative companies cannot reach the marketplace. The end result of antitrust regulations is that innovation is stifled and economies perform at a suboptimal level. These economies then face competition from other nations where such laws are not in place. Needless to say that over a period of time, the lack of innovation kills entire industries.
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What the Current Wave of Protectionism and Populism mean for the Future of Globalization and Free Trade
February 12, 2025
