The Problem with Antitrust Laws

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:

Wrong Conception of Coercive Monopolies

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 Vague

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.

Antitrust Makes Mergers And Acquisitions Difficult

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.

Antitrust Laws Take The Power Away From Consumers

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.

Government Collusion and Corruption

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.

Antitrust Laws Are Against Innovation

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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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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