If you’re reading this then you’re probably already interested in American antitrust. And like many of us, you probably know that antitrust has something to do with monopolies. And it does. But it’s about way more than that too.
At its core, antitrust is a body of law that protects consumers and promotes competition. In America’s market-based economy, that makes sense. We want thriving competition between businesses in every industry and we want to punish behavior that prevents competition. In that sense, antitrust is a fundamental part of our entire economy.
Even so, for most of our lives, talk of antitrust and antitrust reform rarely made the news. Unlike healthcare, education, tax, immigration, and other hot-button issues, antitrust reform just has not drawn the same amount of attention.
But that’s starting to change—from the government’s recent antitrust cases against leading American tech businesses to splashy reforms bubbling up in Congress, the news is making up for lost time.
That’s a good thing. Antitrust reform affects all of us and it’s only right that our elected officials debate it publicly. But now it’s more important than ever that we understand the stakes and the potential effects that reform could have on the entire U.S. economy.
Our series–Back to Basics–is meant to explain American antitrust law in plain English. Here, you’ll find everything you need to know about the current law and its history, a few “fun” anecdotes, and analysis of proposed reforms.
We’ll be updating this blog regularly so it may be worth bookmarking. And if you’re looking for information on a topic that we haven’t covered, shoot us an email and we’ll be happy to get on it.
1.1 Antitrust law protects our market-based economy so that consumers get the best deal possible.
The United States has a market-based economy. That means competition between private businesses–not the government–largely determines the prices we pay.
Sometimes, however, a business or handful of businesses finds a way to distort the market and drive up prices.
Imagine if the only two gas stations in your town entered into a secret agreement to set gas prices at $20 per gallon. With no nearby gas stations to compete with them, you’d be stuck paying far more than you would had they not entered into that illegal agreement.
To address this type of anticompetitive behavior, we have antitrust. At its core, American antitrust is a series of laws that seek to protect competition in the market so that consumers get the benefits they are owed and are not taken advantage of by wrongdoers.
1.2 Consumers benefit from more than just low prices.
Antitrust law often focuses on prices, but it’s not limited to that. In fact, competition also affects things like quality and innovation. If your product is better than your competitors’, you are likely to attract more customers. Seeing that, your competitors will then try to catch up and make their products even better than yours.
This continuous cycle of improvement encourages innovation. To get a leg up, businesses will often try to improve their existing product while also inventing ones with new features or creating entirely new products. That’s good for us because it means we have more choices at lower prices. It’s also good for our economy because it promotes growth and productivity.
1.3 Antitrust law doesn’t protect businesses from competition.
Because we have a market economy, the United States lets businesses succeed or fail on their own merit.
For that reason, our antitrust laws don’t protect a business from competition. In fact, our antitrust laws seek to encourage it. In other words, if Carvel comes to town and puts Friendly’s out of business, we may weep at the loss of Friend-Zs, but we wouldn’t use the government to block Carvel from the market or to punish Carvel for competing.
If we did, we’d be using the government to help one business at another’s expense. And because that would hurt competition, it would also ultimately hurt consumers: Friendly’s would have little incentive to cut prices, improve its ice cream, or innovate with new flavors.
It would also lead many businesses to wonder why the government steps in in some cases but not others. If the government can protect Friendly’s from competition, why not save Blockbuster?
Instead, American antitrust exists to promote competition, interfering only when a business engages in behavior that would harm the competitive process. In other words, antitrust law exists to protect competition itself, not any particular competitor.
- The United States has a market-based economy that allows competition between businesses to determine the price we pay for goods and services.
- This competition encourages rival businesses to improve quality, lower prices, and innovate so that they attract more customers.
- When a business finds a way to rig or corrupt the market so that it can succeed without having to compete on price, quality, or innovation, antitrust law steps in to fix the problem, punish the wrongdoer, and restore the competitive process so that consumers once again benefit.