Allegations Of Anti Competitive Behavior In Markets Economics Essay
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Published: Mon, 5 Dec 2016
A market is a place within which suppliers and demanders of any product interact. This interaction determines what gets caused and overwhelmed via the gesture of the market price. All business organizations must have a relevant knowledge regarding the markets within which they operates. Before discussing the markets which are investigated by the various anti competitive authorities it is very important to discuss the markeet structure in which those markets falls.
The fundamental thought of market structure is midpoint to both economics and marketing. Both disciplines are afraid with strategic decision making. In decision making examination, market design has a valued job through its consequences on the decision-making environment (Baumol, 1961; Yadav1995) Understanding the reasons and effects of focused industry framework remains to pose a formidable contest for industrial organizations markets in which firms can differentiate their commodities are notably complex, as each person firm’s commodity option affects it’s possesses profitability, and the extent of commodity differentiate impacts the intensity of competition for all market participation
According to Moschandreas (2000) it is very difficult to define a market but later setting perimeters it is straightforward to define industry which includes all the firms operating in an individual market. In economics markets can be categorized according to the structure of the industry and industry structure is classified on the basis of market structure variables which determine the extent and characteristics of competition. So different firms operate in different types of markets which is known as market structure. It includes various features like number of firms in the markets and types of product they are dealing with.The competitiveness of the market depends on the power of the individual firms to influence market prices. The long run profitability of firm is judged from their performance in their particular market. So we can say that market structure determines the behaviour of firms and which determines the performance of firms.
According to Chrystal, K.A & Lipsey, R.G (1997). “The term market structure refers to all the features that may affect the behaviour and performance of the firms in the market(for example, the number of firms in the market or the type of product they sell)” The structure of the market in which a firm operates, determines the relationship between the markets demand curve for the product and the demand curve facing each individual firm in that industry to reduce the analysis of market structure to manageable proportions, we analysis for theoretical market structure; perfect competition ,monopoly, monopolistic competition, and oligopoly. Monopoly and perfect competition lie in the too extreme. In the monopoly industry contains only one firm, which can, therefore sets its price without concern about how competiting firms in the industry will react. Perfect competition is a market form where there are several firms competing within an industry. In this type of market structure, firms are price takers, free to enter the industry and produce identical products (Sloman & Sutcliffe, 2001).
In the perfect competition market there are large numbers of buyers and sellers, selling homogeneous product, without having any market power means firms can’t influence the market price and output of product so the firm in perfect competition is a price taker. There are no barriers regarding entry and exit of firms from perfect competition. The large number of firms and the homogeneity of product ensure that each product has a negligible effect on market price and output. Mobility of both sellers and buyers means that if a price difference were to open up it would be exploited immediately. Consequently the possibilities of difference prices prevailing in the same market can be ignored.( Chrystal, K.A & Lipsey, R.G 1997).
For instance, for monopolistic market systems, producers are able to provide the consumers’ specific needs. In a competitive market system, better resource allocation is observed. Monopolistic competition is a form of imperfect competition where many competing producers sell products that are different from one another. Product differentiation, free entry and existence in long run, are some of the main characteristics of monopolistic competition
According to Goodwin (2009) In this type of market buyer have complete knowledge regarding the products offered for sale, and other various characteristics of product like its cost, and profit earned by firm on its sale.
Pure monopoly is another type of market which occurs in special cases when there is a single seller of the product with no close substitute available. Monopolists have the power to control the price and quantity of product. According to Chrystal & Lipsey monopoly may be good for firm but generally bad for consumers because the monopolises use to charge high prices that’s why every countries have regulations and various authorities tos control anti competitive behaviours by the particular market. Typically a monopoly selects a higher price and lower quantity of output than a price-taking firm (Boldrin).
Another market of imperfect competition is oligopoly where the market is dominated by small groups of sellers. The business firms are very much affected by their rivals business so each firm has to do better in order to boost the market for their product. Each firm is subjected to sufficient inter-company rivalry, which in turn prevents others form owing the market structure in modern economies (Chrystal & lipsey, 1997) The main three supermarkets firms Sainsbury, Tesco, and Safeway comes under oligopoly market structure.
So after the brief study of market structure we can say that firms may operates in different structures but the most common structure is imperfect competition, in which there are large number of competing sellers selling different types of product.
In economics Market power plays very crucial role in the markets by which markets like monopoly and oligopoly have a ability to adjust and control the market price and quantity of production in the market. In these types of markets the firms with the market power absolutely raises its price without losing all customers all customers to challenge. Generally, in operational terms, market power is involved in a firm’s monopoly or oligopoly which is also referred as competitive power.
There are various characteristics of oligopoly market which leads to the anti completive practice is their market power and beside this there are other various characteristics of oligopoly market i.e. industry dominate by very small number of firms who are able to control the price and supply of product. According to Griffiths and Wall (2005,p 222) In this type of market is controlled by a few large suppliers who are interdependent on number that an achievement of any one of them will materially act on charge each other, before making any cost and financial endeavour decisions. It is in addition described as a market relative standing in which sellers are so small in and has a quantifiable consequence on competitors; in other words; since there are small number participants in this sort of market, each Oligopolies is mindful of the achievements of the other.
The firm under oligopoly has the market control through barriers to entry in the industry like by patents and copyrights, high start-up cost and other various government restrictions. Moreover, in this kind of market pattern, the answers of other constituents in the direction of strategic designing are habitually taken into concern so as not to conceive interior conflict. Sufficient obstacles are furthermore erected inside this market pattern, hindering new companies from going into the industry effortlessly (Sloman & Sutcliffe, 2001).which is also a type of anti-competitive practices and which is considered illegal by the European competition Act. Based from these cited characteristics, the market natural environment of the
UK grocery retailer market is more patterned after oligopoly. In a study finished by John Bridgman, the controller general of Fair Trading, the outcomes displayed that important obstacles had currently been put up in British food shop retailing, stopping new competitors from going into the industry. This finding had been sustained by the detail that sites for new shops are evolving less; this in turn, is advantageous for living food shop stores. Based from these cited characteristics, the market natural environment of the UK food grocery retailer commerce is more patterned after oligopoly.
In a study finished by John Bridgman, the controller general of Fair Trading, the outcomes displayed that important obstacles had currently been put up in British food shop retailing, stopping new competitors from going into the industry. This finding had been sustained by the detail that sites for new shops are evolving less. In Economics, a situation in which a few companies control the major part of a particular market. In an oligopolistic market, firms may join together in a cartel colluding to fix high prices.
Such collusion an example of a restrictive trade practices is illegal in European Union (EU) Oligopoly is characterized by competition on features other than price. Price wars, where all the large companies in the market cut prices, tend simply to lead to lower profits, leaving market shares little changed. Instead, oligopolistic firms tend to charge relatively high or ‘premium’ prices but compete through advertising and other promotional means ( Liversy, F & Bob, M.1998).
Existing companies are safe from new companies entering the market because barriers to entry to the market are high. For example, if products are heavily promoted and producers have a number of existing successful brands, it will be very costly and difficult for a new firm to establish its own new brand in the market.
Oligopolistic competition can give increase to a broad variety of distinct outcomes. In some positions, the companies may provide restrictive trade practices (collusion, market sharing etc.) to lift charges and constraint output in much the identical way as a monopoly Where there is a prescribed affirmation for such collusion, this is renowned as Cartel example of such a cartel is OPEC which has a deep leverage on the worldwide cost of oil. (Chrystal & lipsey, 1997)
In else situations, competition between distributors within an oligopoly can be fierce, with relatively low prices and tall production. This could command towards an efficient event contacting heavenly competition.The competition within an oligopoly can be increased than when there are many firms within an industry whether, the firms were alone regionally based and did not compete directly with each other.
Thus the interests analysis of oligopolies is sensitive towards the parameter values used towards define the market’s structure. In particular, the grade of dead weight loss is steely towards measure. The learn of product differentiation indicates that oligopolies powers also design excessive grades of differentiation within order towards stifle competition
There are some markets in the above mentioned market structure which engages in anti competitive practices due to their distinct feautures.The anti competitive practices are the practices which are used by many firms in order to reduce competition in the market but it is very difficult to practice to practice. But due to market power held by monopoly and oligopoly the firms under these markets sometimes engaged in the anti competitive activities such as price dumping where products are sold at cheap rates in order to boost the market for their own product, barriers to entry, limiting prices, refusal, and the most importantly price fixing. In UK Asda and Tesco giant super markets which are currently accused for the price flexing policies just to show that are lowering their prices in order to attract more customers. but research also shows that the four super markets Asda, Tesco, Sainsbury’s and Morrison tend to reduce very little as 1p as compare to high increase in price(Lawrence,2010)
Ant-competitive practices mostly reduce the competition in the market many firms in UK were accused by their anti competitive behaviors as by Wearden (2004) the UK Internet Service Provider Free serve has suspect BT engaging in a variety of anti-competitive practices and try to override the broadband Internet market, and has called on industry controller Oftel to taken action. These anti competitive practices have a negative effect on the economy as whole.
Some people suspect that the realities of the marketplace are occasionally many elaborate than this or allied theories of competition would suggest. For example, oligopolistic firms may accomplish economics of climb that would escape cheaper firms. Again, big firms, whether quasi-monopolies or oligopolies, may accomplish grades of sophistication e.g. within corporation procedure and/or intending (that benefit end consumers and) that cheaper firms would not easily attain. There are undoubtedly industries (e.g. airlines and pharmaceuticals) within which the grades of investment are so tall that alone extremely wide firms that may be quasi-monopolies within a number of areas of their corporations can survive.
Postcomm has wide-ranging forces to gather data and enquire complaints about anti-competitive demeanor the posted mail market. In perform, since Royal Mail is the superior permitted operator in the postal part – with a market share of more than 96% – it is most expected to be the aim of any enquiry into anti-competitive behaviour.Anti-competitive behaviour may engage the provide of services at charge or on period that are unduly discriminatory or unduly restrictive, or which are predatory. it may further more engage in getting an unjust financial benefit over competitors, or denying to provide get access to postal facilities(Postal service commission)
Monopolies, cartels, and price fixing agreements among oligopolistics,are non-competitive practices which are also known as restrictive practices or monopoly practices as these practices are generally practiced in monopoly and oligopoly markets and the laws and other competitive authorities are used to encourage competition and discourage these anti competitive practices. One of the most important authorities in UK is Competition Commission (CC) A UK body set up in 1998 in replacement of the Monopolies and Mergers Commission (MMC) and the Restrictive Practices Court (RPC), with the same aims, controlling monopoly, oligopoly and encouraging competition. The Competition Commission cannot instigate investigations itself – an inquiry commences following the referral of a particular case to the Competition Commission, most often by the Office of Fair Trading (OFT) or by other sectoral regulators. Competitions policies are means for controlling the competitive environment in which organization exists by prohibiting anti competitive practices by oligopoly and breaking up monopolies (Cook, M & Farquharson, C. 1998).
In the UK, supermarkets which comes under oligopoly market structure fall under the authority of the Competition Commission, which is charged with looking at all aspects of the sector in order to ensure that competition remains an active part of the market, with the ultimate aim of looking after the needs of the consumer
As the Britain’s Electricity and Gas Industry also comes under oligopoly market. This market was also investigated by authorities under competition commission and instructed the industry that need innovate and competition there should not be any barriers for the new entrance in the industry.(Milner,2008)
With UK competition having been brought in line with EU legislation, it is possible to consider the two together.
It is generally agreed by the commentators that the policy is correct to concentrate on anti-competitive practices and their effects rather than simply on the existence of agreement or on the size of the firm’s market share.
As in case of monopoly and oligopoly these market uses their market power to reduce competition in the market which is also an anti -competitive behaviour. But under the chapter ii prohibition of the 1988 competition act it is illegal for the firms to use their market power in order to decrease competition in the market
In case of any misconduct by any firm regarding allegation of competitive behaviour in order to maintain stability in the market. The Microsoft was panelised for abusing the market position under Anti-trust ruling and was guilty of not providing appropriate information to their rivals. It is very much clear that how these competition are playing important role in controlling the anti-competitive behaviours by the particular market (BBC 2008)
In addition ,UK government may seek to promote the competition in the market through its various policies regarding mergers and takeovers.
In conclusion, we can see say that there are number of market structures exists and each one is different from each others, but the main similarity between these structure is to maximize their profits. As mentioned on the first that the few markets like oligopoly an monopoly uses various anti competitve practices which have the negative effect on the economy as whole. The Government can have a large impact on the five forces governing the supermarket industry which comes under oligopoly market. However it has also been shown that it is not always beneficial to do so. Markets are generally secure and make large economic contributions to the country. Consumers are faced with a wide range of well priced, quality goods, and that is hard to argue against, but the main concern is the continuous use of anticompetitive behavior by different companies under oligopoly markets and even many firms are being penalized by the competition commission as mentioned on the first par of essay.
Addition to it, government should make some economic regulations and the firms are prescribed to work under only these regulations regarding price policies. These competition policies should focus on the three main aspects i.e. to control the natural monopoly, their direct control of oligopolies and the most importantly creating competition in the market.
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