A. THE PHILOSOPHY OF COMPETITION
The aims of competition (anti-trust) laws are to ensure
that consumers pay the lowest possible price (=the most
efficient price) coupled with the highest quality of the
goods and services which they consume. This, according
to current economic theories, can be achieved only
through effective competition. Competition not only
reduces particular prices of specific goods and services - it
also tends to have a deflationary effect by reducing the
general price level. It pits consumers against producers,
producers against other producers (in the battle to win the
heart of consumers) and even consumers against
consumers (for example in the healthcare sector in the
USA). This everlasting conflict does the miracle of
increasing quality with lower prices. Think about the vast
improvement on both scores in electrical appliances. The
VCR and PC of yesteryear cost thrice as much and
provided one third the functions at one tenth the speed.
Competition has innumerable advantages:
a. It encourages manufacturers and service providers
to be more efficient, to better respond to the needs of their
customers, to innovate, to initiate, to venture. In
professional words: it optimizes the allocation of
resources at the firm level and, as a result, throughout the
national economy.
More simply: producers do not waste resources (capital),
consumers and businesses pay less for the same goods and
services and, as a result, consumption grows to the benefit
of all involved.
b. The other beneficial effect seems, at first sight, to
be an adverse one: competition weeds out the
failures, the incompetents, the inefficient, the fat
and slow to respond. Competitors pressure one
another to be more efficient, leaner and meaner.
This is the very essence of capitalism. It is wrong
to say that only the consumer benefits. If a firm
improves itself, re-engineers its production
processes, introduces new management
techniques, modernizes - in order to fight the
competition, it stands to reason that it will reap the
rewards. Competition benefits the economy, as a
whole, the consumers and other producers by a
process of natural economic selection where only
the fittest survive. Those who are not fit to survive
die out and cease to waste the rare resources of
humanity.
Thus, paradoxically, the poorer the country, the less
resources it has - the more it is in need of competition.
Only competition can secure the proper and most efficient
use of its scarce resources, a maximization of its output
and the maximal welfare of its citizens (consumers).
Moreover, we tend to forget that the biggest consumers
are businesses (firms). If the local phone company is
inefficient (because no one competes with it, being a
monopoly) - firms will suffer the most: higher charges,
bad connections, lost time, effort, money and business. If
the banks are dysfunctional (because there is no foreign
competition), they will not properly service their clients
and firms will collapse because of lack of liquidity. It is
the business sector in poor countries which should head
the crusade to open the country to competition.
Unfortunately, the first discernible results of the
introduction of free marketry are unemployment and
business closures. People and firms lack the vision, the
knowledge and the wherewithal needed to support
competition. They fiercely oppose it and governments
throughout the world bow to protectionist measures. To
no avail. Closing a country to competition will only
exacerbate the very conditions which necessitate its
opening up. At the end of such a wrong path awaits
economic disaster and the forced entry of competitors. A
country which closes itself to the world - will be forced to
sell itself cheaply as its economy will become more and
more inefficient, less and less competitive.
The Competition Laws aim to establish fairness of
commercial conduct among entrepreneurs and competitors
which are the sources of said competition and innovation.
Experience - later buttressed by research - helped to
establish the following four principles:
1. There should be no barriers to the entry of new
market players (barring criminal and moral
barriers to certain types of activities and to certain
goods and services offered).
2. A larger scale of operation does introduce
economies of scale (and thus lowers prices).
This, however, is not infinitely true. There is a
Minimum Efficient Scale - MES - beyond which
prices will begin to rise due to monopolization of
the markets. This MES was empirically fixed at
10% of the market in any one good or service. In
other words: companies should be encouraged to
capture up to 10% of their market (=to lower
prices) and discouraged to cross this barrier, lest
prices tend to rise again.
3. Efficient competition does not exist when a market
is controlled by less than 10 firms with big size
differences. An oligopoly should be declared
whenever 4 firms control more than 40% of the
market and the biggest of them controls more than
12% of it.
4. A competitive price will be comprised of a
minimal cost plus an equilibrium profit which does
not encourage either an exit of firms (because it is
too low), nor their entry (because it is too high).
Left to their own devices, firms tend to liquidate
competitors (predation), buy them out or collude with
them to raise prices. The 1890 Sherman Antitrust Act in
the USA forbade the latter (section 1) and prohibited
monopolization or dumping as a method to eliminate
competitors. Later acts (Clayton, 1914 and the Federal
Trade Commission Act of the same year) added forbidden
activities: tying arrangements, boycotts, territorial
divisions, non-competitive mergers, price discrimination,
exclusive dealing, unfair acts, practices and methods.
Both consumers and producers who felt offended were
given access to the Justice Department and to the FTC or
the right to sue in a federal court and be eligible to receive
treble damages.
It is only fair to mention the "intellectual competition",
which opposes the above premises. Many important
economists thought (and still do) that competition laws
represent an unwarranted and harmful intervention of the
State in the markets. Some believed that the State should
own important industries (J.K. Galbraith), others - that
industries should be encouraged to grow because only size
guarantees survival, lower prices and innovation (Ellis
Hawley). Yet others supported the cause of laissez faire
(Marc Eisner).
These three antithetical approaches are, by no means,
new. One led to socialism and communism, the other to
corporatism and monopolies and the third to jungle-
ization of the market (what the Europeans derisively call:
the Anglo-Saxon model).
B. HISTORICAL AND LEGAL CONSIDERATIONS
Why does the State involve itself in the machinations of
the free market? Because often markets fail or are unable
or unwilling to provide goods, services, or competition.
The purpose of competition laws is to secure a
competitive marketplace and thus protect the consumer
from unfair, anti-competitive practices. The latter tend to
increase prices and reduce the availability and quality of
goods and services offered to the consumer.
Such state intervention is usually done by establishing a
governmental Authority with full powers to regulate the
markets and ensure their fairness and accessibility to new
entrants. Lately, international collaboration between such
authorities yielded a measure of harmonization and
coordinated action (especially in cases of trusts which are
the results of mergers and acquisitions).
Yet, competition law embodies an inherent conflict: while
protecting local consumers from monopolies, cartels and
oligopolies - it ignores the very same practices when
directed at foreign consumers. Cartels related to the
country's foreign trade are allowed even under
GATT/WTO rules (in cases of dumping or excessive
export subsidies). Put simply: governments regard acts
which are criminal as legal if they are directed at foreign
consumers or are part of the process of foreign trade.
A country such as Macedonia - poor and in need of
establishing its export sector - should include in its
competition law at least two protective measures against
these discriminatory practices:
1. Blocking Statutes - which prohibit its legal entities
from collaborating with legal procedures in other
countries to the extent that this collaboration
adversely affects the local export industry.
2. Clawback Provisions - which will enable the local
courts to order the refund of any penalty payment
decreed or imposed by a foreign court on a local
legal entity and which exceeds actual damage
inflicted by unfair trade practices of said local
legal entity. US courts, for instance, are allowed to
impose treble damages on infringing foreign
entities. The clawback provisions are used to battle
this judicial aggression.
Competition policy is the antithesis of industrial policy.
The former wishes to ensure the conditions and the rules
of the game - the latter to recruit the players, train them
and win the game. The origin of the former is in the 19th
century USA and from there it spread to (really was
imposed on) Germany and Japan, the defeated countries in
the 2nd World War. The European Community (EC)
incorporated a competition policy in articles 85 and 86 of
the Rome Convention and in Regulation 17 of the Council
of Ministers, 1962.
Still, the two most important economic blocks of our time
have different goals in mind when implementing
competition policies. The USA is more interested in
economic (and econometric) results while the EU
emphasizes social, regional development and political
consequences. The EU also protects the rights of small
businesses more vigorously and, to some extent, sacrifices
intellectual property rights on the altar of fairness and the
free movement of goods and services.
Put differently: the USA protects the producers and the
EU shields the consumer. The USA is interested in the
maximization of output at whatever social cost - the EU is
interested in the creation of a just society, a liveable
community, even if the economic results will be less than
optimal.
There is little doubt that Macedonia should follow the EU
example. Geographically, it is a part of Europe and, one
day, will be integrated in the EU. It is socially sensitive,
export oriented, its economy is negligible and its
consumers are poor, it is besieged by monopolies and
oligopolies.
In my view, its competition laws should already
incorporate the important elements of the EU
(Community) legislation and even explicitly state so in the
preamble to the law. Other, mightier, countries have done
so. Italy, for instance, modelled its Law number 287 dated
10/10/90 "Competition and Fair Trading Act" after the EC
legislation. The law explicitly says so.
The first serious attempt at international harmonization of
national antitrust laws was the Havana Charter of 1947. It
called for the creation of an umbrella operating
organization (the International Trade Organization or
"ITO") and incorporated an extensive body of universal
antitrust rules in nine of its articles. Members were
required to "prevent business practices affecting
international trade which restrained competition, limited
access to markets, or fostered monopolistic control
whenever such practices had harmful effects on the
expansion of production or trade". the latter included:
a. Fixing prices, terms, or conditions to be observed
in dealing with others in the purchase, sale, or lease of any
product;
b. Excluding enterprises from, or allocating or
dividing, any territorial market or field of business
activity, or allocating customers, or fixing sales
quotas or purchase quotas;
c. Discriminating against particular enterprises;
d. Limiting production or fixing production quotas;
e. Preventing by agreement the development or
application of technology or invention, whether
patented or non-patented; and
f. Extending the use of rights under intellectual
property protections to matters which, according to
a member's laws and regulations, are not within
the scope of such grants, or to products or
conditions of production, use, or sale which are
not likewise the subject of such grants.
GATT 1947 was a mere bridging agreement but the
Havana Charter languished and died due to the objections
of a protectionist US Senate.
There are no antitrust/competition rules either in GATT
1947 or in GATT/WTO 1994, but their provisions on
antidumping and countervailing duty actions and
government subsidies constitute some elements of a more
general antitrust/competition law.
GATT, though, has an International Antitrust Code
Writing Group which produced a "Draft International
Antitrust Code" (10/7/93). It is reprinted in II, 64
Antitrust & Trade Regulation Reporter (BNA), Special
Supplement at S-3 (19/8/93).
Four principles guided the (mostly German) authors:
1. National laws should be applied to solve
international competition problems;
2. Parties, regardless of origin, should be treated as
locals;
3. A minimum standard for national antitrust rules
should be set (stricter measures would be
welcome); and
4. The establishment of an international authority to
settle disputes between parties over antitrust
issues.
The 29 (well-off) members of the Organization for
Economic Cooperation and Development (OECD) formed
rules governing the harmonization and coordination of
international antitrust/competition regulation among its
member nations ("The Revised Recommendation of the
OECD Council Concerning Cooperation between Member
Countries on Restrictive Business Practices Affecting
International Trade," OECD Doc. No. C(86)44 (Final)
(June 5, 1986), also in 25 International Legal Materials
1629 (1986). A revised version was reissued. According
to it, " .Enterprises should refrain from abuses of a
dominant market position; permit purchasers, distributors,
and suppliers to freely conduct their businesses; refrain
from cartels or restrictive agreements; and consult and
cooperate with competent authorities of interested
countries".
An agency in one of the member countries tackling an
antitrust case, usually notifies another member country
whenever an antitrust enforcement action may affect
important interests of that country or its nationals (see:
OECD Recommendations on Predatory Pricing, 1989).
The United States has bilateral antitrust agreements with
Australia, Canada, and Germany, which was followed by
a bilateral agreement with the EU in 1991. These provide
for coordinated antitrust investigations and prosecutions.
The United States thus reduced the legal and political
obstacles which faced its extraterritorial prosecutions and
enforcement. The agreements require one party to notify
the other of imminent antitrust actions, to share relevant
information, and to consult on potential policy changes.
The EU-U.S. Agreement contains a "comity" principle
under which each side promises to take into consideration
the other's interests when considering antitrust
prosecutions. A similar principle is at the basis of Chapter
15 of the North American Free Trade Agreement
(NAFTA) - cooperation on antitrust matters.
The United Nations Conference on Restrictive Business
Practices adopted a code of conduct in 1979/1980 that was
later integrated as a U.N. General Assembly Resolution
[U.N. Doc. TD/RBP/10 (1980)]: "The Set of
Multilaterally Agreed Equitable Principles and Rules".
According to its provisions, "independent enterprises
should refrain from certain practices when they would
limit access to markets or otherwise unduly restrain
competition".
The following business practices are prohibited:
1. Agreements to fix prices (including export and
import prices);
2. Collusive tendering;
3. Market or customer allocation (division)
arrangements;
4. Allocation of sales or production by quota;
5. Collective action to enforce arrangements, e.g., by
concerted refusals to deal;
6. Concerted refusal to sell to potential importers;
and
7. Collective denial of access to an arrangement, or
association, where such access is crucial to
competition and such denial might hamper it. In
addition, businesses are forbidden to engage in the
abuse of a dominant position in the market by
limiting access to it or by otherwise restraining
competition by:
a. Predatory behaviour towards
competitors;
b. Discriminatory pricing or terms or
conditions in the supply or purchase
of goods or services;
c. Mergers, takeovers, joint ventures,
or other acquisitions of control;
d. Fixing prices for exported goods or
resold imported goods;
e. Import restrictions on legitimately-
marked trademarked goods;
f. Unjustifiably - whether partially or
completely - refusing to deal on an
enterprise's customary commercial
terms, making the supply of goods
or services dependent on
restrictions on the distribution or
manufacturer of other goods,
imposing restrictions on the resale
or exportation of the same or other
goods, and purchase "tie-ins".
C. ANTI - COMPETITIVE STRATEGIES
Any Competition Law in Macedonia should, in my view,
excplicitly include strict prohibitions of the following
practices (further details can be found in Porter's book -
"Competitive Strategy").
These practices characterize the Macedonian market.
They influence the Macedonian economy by discouraging
foreign investors, encouraging inefficiencies and
mismanagement, sustaining artificially high prices,
misallocating very scarce resources, increasing
unemployment, fostering corrupt and criminal practices
and, in general, preventing the growth that Macedonia
could have attained.
Strategies for Monopolization
Exclude competitors from distribution channels. - This is
common practice in many countries. Open threats are
made by the manufacturers of popular products: "If you
distribute my competitor's products - you cannot distribute
mine. So, choose." Naturally, retail outlets, dealers and
distributors will always prefer the popular product to the
new. This practice not only blocks competition - but also
innovation, trade and choice or variety.
Buy up competitors and potential competitors. - There is
nothing wrong with that. Under certain circumstances, this
is even desirable. Think about the Banking System: it is
always better to have fewer banks with bigger capital than
many small banks with capital inadequacy (remember the
TAT affair). So, consolidation is sometimes welcome,
especially where scale represents viability and a higher
degree of consumer protection. The line is thin and is
composed of both quantitative and qualitative criteria.
One way to measure the desirability of such mergers and
acquisitions (M&A) is the level of market concentration
following the M&A. Is a new monopoly created? Will the
new entity be able to set prices unperturbed? stamp out its
other competitors? If so, it is not desirable and should be
prevented.
Every merger in the USA must be approved by the
antitrust authorities. When multinationals merge, they
must get the approval of all the competition authorities in
all the territories in which they operate. The purchase of
"Intuit" by "Microsoft" was prevented by the antitrust
department (the "Trust-busters"). A host of airlines was
conducting a drawn out battle with competition authorities
in the EU, UK and the USA lately.
Use predatory [below-cost] pricing (also known as
dumping) to eliminate competitors. - This tactic is mostly
used by manufacturers in developing or emerging
economies and in Japan. It consists of "pricing the
competition out of the markets". The predator sells his
products at a price which is lower even than the costs of
production. The result is that he swamps the market,
driving out all other competitors. Once he is left alone - he
raises his prices back to normal and, often, above normal.
The dumper loses money in the dumping operation and
compensates for these losses by charging inflated prices
after having the competition eliminated.
Raise scale-economy barriers. - Take unfair advantage of
size and the resulting scale economies to force conditions
upon the competition or upon the distribution channels. In
many countries Big Industry lobbies for a legislation
which will fit its purposes and exclude its (smaller)
competitors.
Increase "market power (share) and hence profit
potential".
Study the industry's "potential" structure and ways it
can be made less competitive. - Even thinking about sin
or planning it should be prohibited. Many industries have
"think tanks" and experts whose sole function is to show
the firm the way to minimize competition and to increase
its market shares. Admittedly, the line is very thin: when
does a Marketing Plan become criminal?
Arrange for a "rise in entry barriers to block later
entrants" and "inflict losses on the entrant". - This
could be done by imposing bureaucratic obstacles (of
licencing, permits and taxation), scale hindrances (no
possibility to distribute small quantities), "old boy
networks" which share political clout and research and
development, using intellectual property right to block
new entrants and other methods too numerous to recount.
An effective law should block any action which prevents
new entry to a market.
Buy up firms in other industries "as a base from which
to change industry structures" there. - This is a way of
securing exclusive sources of supply of raw materials,
services and complementing products. If a company owns
its suppliers and they are single or almost single sources
of supply - in effect it has monopolized the market. If a
software company owns another software company with a
product which can be incorporated in its own products -
and the two have substantial market shares in their
markets - then their dominant positions will reinforce each
other's.
"Find ways to encourage particular competitors out of
the industry". - If you can't intimidate your competitors
you might wish to "make them an offer that they cannot
refuse". One way is to buy them, to bribe the key
personnel, to offer tempting opportunities in other
markets, to swap markets (I will give you my market
share in a market which I do not really care about and you
will give me your market share in a market in which we
are competitors). Other ways are to give the competitors
assets, distribution channels and so on providing that they
collude in a cartel.
"Send signals to encourage competition to exit" the
industry. - Such signals could be threats, promises, policy
measures, attacks on the integrity and quality of the
competitor, announcement that the company has set a
certain market share as its goal (and will, therefore, not
tolerate anyone trying to prevent it from attaining this
market share) and any action which directly or indirectly
intimidates or convinces competitors to leave the industry.
Such an action need not be positive - it can be negative,
need not be done by the company - can be done by its
political proxies, need not be planned - could be
accidental. The results are what matters.
Macedonia's Competition Law should outlaw the
following, as well:
'Intimidate' Competitors
Raise "mobility" barriers to keep competitors in the
least-profitable segments of the industry. - This is a tactic
which preserves the appearance of competition while
subverting it. Certain segments, usually less profitable or
too small to be of interest, or with dim growth prospects,
or which are likely to be opened to fierce domestic and
foreign competition are left to the competition. The more
lucrative parts of the markets are zealously guarded by the
company. Through legislation, policy measures,
withholding of technology and know-how - the firm
prevents its competitors from crossing the river into its
protected turf.
Let little firms "develop" an industry and then come in
and take it over. - This is precisely what Netscape is
saying that Microsoft is doing to it. Netscape developed
the now lucrative Browser Application market. Microsoft
was wrong in discarding the Internet as a fad. When it was
found to be wrong - Microsoft reversed its position and
came up with its own (then, technologically inferior)
browser (the Internet Explorer). It offered it free (sound
suspiciously like dumping) to buyers of its operating
system, "Windows". Inevitably it captured more than 30%
of the market, crowding out Netscape. It is the view of the
antitrust authorities in the USA that Microsoft utilized its
dominant position in one market (that of the Operating
Systems) to annihilate a competitor in another (that of the
browsers).
Engage in "promotional warfare" by "attacking shares
of others". - This is when the gist of a marketing,
lobbying, or advertising campaign is to capture the market
share of the competition. Direct attack is then made on the
competition just in order to abolish it. To sell more in
order to maximize profits, is allowed and meritorious - to
sell more in order to eliminate the competition is wrong
and should be disallowed.
Use price retaliation to "discipline" competitors. -
Through dumping or even unreasonable and excessive
discounting. This could be achieved not only through the
price itself. An exceedingly long credit term offered to a
distributor or to a buyer is a way of reducing the price.
The same applies to sales, promotions, vouchers, gifts.
They are all ways to reduce the effective price. The
customer calculates the money value of these benefits and
deducts them from the price.
Establish a "pattern" of severe retaliation against
challengers to "communicate commitment" to resist
efforts to win market share. - Again, this retaliation can
take a myriad of forms: malicious advertising, a media
campaign, adverse legislation, blocking distribution
channels, staging a hostile bid in the stock exchange just
in order to disrupt the proper and orderly management of
the competitor. Anything which derails the competitor
whenever he makes a headway, gains a larger market
share, launches a new product - can be construed as a
"pattern of retaliation".
Maintain excess capacity to be used for "fighting"
purposes to discipline ambitious rivals. - Such excess
capacity could belong to the offending firm or - through
cartel or other arrangements - to a group of offending
firms.
Publicize one's "commitment to resist entry" into the
market.
Publicize the fact that one has a "monitoring system" to
detect any aggressive acts of competitors.
Announce in advance "market share targets" to
intimidate competitors into yielding their market share.
Proliferate Brand Names
Contract with customers to "meet or match all price cuts
(offered by the competition)" thus denying rivals any
hope of growth through price competition.
Secure a big enough market share to "corner" the
"learning curve," thus denying rivals an opportunity to
become efficient. - Efficiency is gained by an increase in
market share. Such an increase leads to new demands
imposed by the market, to modernization, innovation, the
introduction of new management techniques (example:
Just In Time inventory management), joint ventures,
training of personnel, technology transfers, development
of proprietary intellectual property and so on. Deprived of
a growing market share - the competitor will not feel
pressurized to learn and to better itself. In due time, it will
dwindle and die.
Acquire a wall of "defensive" patents to deny
competitors access to the latest technology.
"Harvest" market position in a no-growth industry by
raising prices, lowering quality, and stopping all
investment and advertising in it.
Create or encourage capital scarcity. - By colluding with
sources of financing (e.g., regional, national, or
investment banks), by absorbing any capital offered by the
State, by the capital markets, through the banks, by
spreading malicious news which serve to lower the credit-
worthiness of the competition, by legislating special tax
and financing loopholes and so on.
Introduce high advertising-intensity. - This is very
difficult to measure. There could be no objective criteria
which will not go against the grain of the fundamental
right to freedom of expression. However, truth in
advertising should be strictly imposed. Practices such as
dragging a competitor through the mud or derogatorily
referring to its products or services in advertising
campaigns should be banned and the ban should be
enforced.
Proliferate "brand names" to make it too expensive for
small firms to grow. - By creating and maintaining a host
of absolutely unnecessary brandnames, the competition's
brandnames are crowded out. Again, this cannot be
legislated against. A firm has the right to create and
maintain as many brandnames as it wishes. The market
will exact a price and thus punish such a company
because, ultimately, its own brandname will suffer from
the proliferation.
Get a "corner" (control, manipulate and regulate) on
raw materials, government licenses, contracts, subsidies,
and patents (and, of course, prevent the competition
from having access to them).
Build up "political capital" with government bodies;
overseas, get "protection" from "the host government".
'Vertical' Barriers
Practice a "preemptive strategy" by capturing all
capacity expansion in the industry (simply buying it,
leasing it or taking over the companies that own or
develop it).
This serves to "deny competitors enough residual
demand". Residual demand, as we previously explained,
causes firms to be efficient. Once efficient, they develop
enough power to "credibly retaliate" and thereby "enforce
an orderly expansion process" to prevent overcapacity
Create "switching" costs. - Through legislation,
bureaucracy, control of the media, cornering advertising
space in the media, controlling infrastructure, owning
intellectual property, owning, controlling or intimidating
distribution channels and suppliers and so on.
Impose vertical "price squeezes". - By owning,
controlling, colluding with, or intimidating suppliers and
distributors, marketing channels and wholesale and retail
outlets into not collaborating with the competition.
Practice vertical integration (buying suppliers and
distribution and marketing channels).
This has the following effects:
The firm gains a "tap (access) into technology" and
marketing information in an adjacent industry. It defends
itself against a supplier's too-high or even realistic prices.
It defends itself against foreclosure, bankruptcy and
restructuring or reorganization. Owning suppliers means
that the supplies do not cease even when payment is not
affected, for instance.
It "protects proprietary information from suppliers" -
otherwise the firm might have to give outsiders access to
its technology, processes, formulas and other intellectual
property.
It raises entry and mobility barriers against competitors.
This is why the State should legislate and act against any
purchase, or other types of control of suppliers and
marketing channels which service competitors and thus
enhance competition.
It serves to "prove that a threat of full integration is
credible" and thus intimidate competitors.
Finally, it gets "detailed cost information" in an adjacent
industry (but doesn't integrate it into a "highly competitive
industry").
"Capture distribution outlets" by vertical integration to
"increase barriers".
'Consolidate' the Industry
Send "signals" to threaten, bluff, preempt, or collude
with competitors.
Use a "fighting brand" (a low-price brand used only for
price-cutting).
Use "cross parry" (retaliate in another part of a
competitor's market).
Harass competitors with antitrust suits and other
litigious techniques.
Use "brute force" ("massed resources" applied "with
finesse") to attack competitors
or use "focal points" of pressure to collude with
competitors on price.
"Load up customers" at cut-rate prices to "deny new
entrants a base" and force them to "withdraw" from
market.
Practice "buyer selection," focusing on those that are
the most "vulnerable" (easiest to overcharge) and
discriminating against and for certain types of
consumers.
"Consolidate" the industry so as to "overcome industry
fragmentation".
This arguments is highly successful with US federal
courts in the last decade. There is an intuitive feeling that
few is better and that a consolidated industry is bound to
be more efficient, better able to compete and to survive
and, ultimately, better positioned to lower prices, to
conduct costly research and development and to increase
quality. In the words of Porter: "(The) pay-off to
consolidating a fragmented industry can be high because...
small and weak competitors offer little threat of
retaliation".
Time one's own capacity additions; never sell old
capacity "to anyone who will use it in the same
industry" and buy out "and retire competitors'
capacity".
A Note on the Spiteful Application of Competition Laws
In many developing countries and countries in transition
from Communism to capitalism, competition laws are
used to reward cronies or to damage opponents. The
discriminatory and partial application of such laws and
regulations sustains networks of patronage and cements
political-economic alliances.
This abuse of the rule of Law and the regulatory regime is
further compounded by the seething pathological envy
that is typical of erstwhile egalitarian societies now
exposed to growing income inequalities. The mob,
business rivals, political parties, and the populace at large
leverage competition laws to tear down businesses and
humiliate entrepreneurs whose success grates on their
nerves and provokes their unbridled jealousy.