Antitrust And The American Consumer - 2673 Words

Antitrust and the American Consumer Kent L. Himes College of Western Idaho Abstract The predominant view in the United States is that The Sherman Antitrust Act of 1890 was passed with the intent to protect consumers from inefficient market forms, and predation by large corporations. The specific provisions of the Sherman Act, as well as the later Clayton Act of 1914, prohibit acts that are considered to be anti competitive such as cartels, monopolies, price discrimination, and predatory pricing. Mergers and acquisitions are also individually reviewed to ensure they won t have an anti competitive effect on the market. We will look at each of these acts to try to determine their actual impact to the consumer. We will also†¦show more content†¦(DOJ 1997) Note that price fixing doesn t necessarily need to result in increased prices. Price fixing scenarios require two main ingredients to be effective for the companies that attempt them. First, the demand curve for the product or service in question must be sufficiently inelastic such that a decrease in production will raise the price enough to ensure a higher profit level. The second requirement for price fixing is that participating companies must combine for an effective monopoly of the market in question. If two relatively minor companies decide to raise their prices together, this will only result in the rest of the market taking additional share, and the conspirators losing money. In a free market economy, price fixing agreements face two large challenges to their effectiveness. The first is that while the companies participating in a price fixing agreement will benefit as a whole from adhering to the agreement, each individual company has a very strong incentive to cheat on the agreement and charge a market rate. Lowering prices allows the company to pick up additional market share from their competitors and increase profits for themselves above what they would be entitled to under the agreement. The second difficulty arises from the fact that without very high barriers to market entry, the higher prices being charged