If capitalism is great…
Why does the government have a vested interest in limiting it?
Specifically, when it comes to monopolistic behaviors amongst firms.
What defines this behavior?
Any attempt to establish or maintain monopoly power within a certain market.
Monopoly power exists when a single company controls a significant portion of the market, allowing it to …
(i) Set prices
(ii) Limit competition
(iii) Exploit consumers
What are actual examples of this?
Price Fixing – competitors agree to set prices at a certain level, rather than allowing them to be determined by market forces. This artificially increases prices.
Market Allocation – companies may agree to divide markets among themselves, thereby avoiding competition in certain areas
Tying Arrangements – a company requires customers to purchase one product in order to purchase another. This limits consumer choice and prevents competition.
So, why is competition important?
Because it allows capitalism to thrive. Market inefficiency arises when there are no other competitors.
Capitalism can only exist when there is competition in the marketplace that lets the marketplace decide.
Without any decisions to be made, there cannot be capitalism.
That is autocracy. Power of one.
So, the government prevents such actions through regulation and boards that enforce the rules.
Antitrust Laws – Sherman Antitrust Act, the Clayton Antitrust Act, and the Federal Trade Commission Act
Government agencies – Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) enforce antitrust laws.
Bottom-line? For capitalism to exist, we cannot have a marketplace with no choices.
