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Competition law is a
law Law is a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. A system, surrounded and influenced by its environment, is described by its boundari ...
that promotes or seeks to maintain
market competition In economics, competition is a scenario where different Economic agent, economic firmsThis article follows the general economic convention of referring to all actors as firms; examples in include individuals and brands or divisions within the sam ...
by regulating
anti-competitive Anti-competitive practices are business or government practices that unlawfully prevent or reduce competition Competition arises whenever two or more parties strive for a common goal A goal is an idea of the future or desired result tha ...
conduct by companies. Competition law is implemented through public and private enforcement. It is also known as ''anti-
monopoly A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none) is as described by Irving Fisher, a market with the "absence of competition", creating a situation where a specific ...

monopoly
law'' in China and Russia. In previous years it has been known as ''trade practices law'' in the United Kingdom and Australia. In the
European Union The European Union (EU) is a political and economic union of that are located primarily in . The union has a total area of and an estimated total population of about 447million. has been established through a standardised that apply in ...

European Union
, it is referred to as both ''antitrust'' and ''competition law''. The history of competition law reaches back to the
Roman Empire The Roman Empire ( la, Imperium Rōmānum ; grc-gre, Βασιλεία τῶν Ῥωμαίων, Basileía tôn Rhōmaíōn) was the post-Republican Republican can refer to: Political ideology * An advocate of a republic, a type of governme ...

Roman Empire
. The business practices of market traders,
guild A guild is an association of artisan Wood carver in Bali An artisan (from french: artisan, it, artigiano) is a skilled craft worker who makes or creates material objects partly or entirely by hand. These objects may be functional ...
s and governments have always been subject to scrutiny, and sometimes severe sanctions. Since the 20th century, competition law has become global. The two largest and most influential systems of competition regulation are
United States antitrust law In the United States, antitrust law Competition law is a that promotes or seeks to maintain by regulating conduct by companies. Competition law is implemented through public and private enforcement. It is also known as ''anti- law'' in Chi ...
and
European Union competition law European competition law is the competition law Competition law is a that promotes or seeks to maintain by regulating conduct by companies. Competition law is implemented through public and private enforcement. It is also known as ''anti- l ...
. National and regional competition authorities across the world have formed international support and enforcement networks. Modern competition law has historically evolved on a national level to promote and maintain fair competition in markets principally within the territorial boundaries of
nation-states A nation state is a political unit where the state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newsp ...
. National competition law usually does not cover activity beyond territorial borders unless it has significant effects at nation-state level. Countries may allow for
extraterritorial jurisdiction Extraterritorial jurisdiction (ETJ) is the legal ability of a government to exercise authority beyond its normal boundaries. Any authority can claim ETJ over any external territory they wish. However, for the claim to be effective in the external ...
in competition cases based on so-called "effects doctrine". The protection of international competition is governed by international competition agreements. In 1945, during the negotiations preceding the adoption of the
General Agreement on Tariffs and Trade The General Agreement on Tariffs and Trade (GATT) is a between many countries, whose overall purpose was to promote by reducing or eliminating s such as or . According to its preamble, its purpose was the "substantial reduction of tariffs a ...
(GATT) in 1947, limited international competition obligations were proposed within the ''Charter for an International Trade Organisation''. These obligations were not included in GATT, but in 1994, with the conclusion of the
Uruguay Round The Uruguay Round was the 8th round of multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many count ...
of GATT multilateral negotiations, the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade between nations. Governments use the organization to establish, revise, and enforce the rules that govern international ...
(WTO) was created. The ''Agreement Establishing the WTO'' included a range of limited provisions on various cross-border competition issues on a sector specific basis.


Principle

Competition law, or antitrust law, has three main elements: * prohibiting agreements or practices that restrict free trading and competition between business. This includes in particular the repression of free trade caused by
cartel A cartel is a group of independent market participants who Collusion, collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of r ...

cartel
s. * banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include
predatory pricing Predatory pricing is a pricing strategy, using the method of undercutting on a larger scale, where a dominant Domination or dominant may refer to: Society * World domination, which is mainly a conspiracy theory * Colonialism in which one group ( ...
, tying,
price gouging Price gouging occurs when a seller increases the prices of goods In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics ...
, and
refusal to deal Though in general, each business may decide with whom they wish to transact, there are some situations when a refusal to deal may be considered an unlawful anti-competitive practice Anti-competitive practices are business or government practices ...
. * supervising the
mergers and acquisitions In , mergers and acquisitions (M&A) are transactions in which the ownership of , other business organizations, or their operating units are transferred or with other entities. As an aspect of , M&A can allow enterprises to grow or , and change ...
of large corporations, including some
joint venture A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownershipEquity sharing is another name for shared ownership or ''co-ownership (disambiguation), co-ownership''. It takes one property, m ...
s. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to "remedies" such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing. Substance and practice of competition law varies from jurisdiction to jurisdiction. Protecting the interests of consumers (
consumer welfare Welfare economics is a branch of economics that uses microeconomic techniques to evaluate well-being Well-being, also known as ''wellness'', ''prudential value'' or ''quality of life'', refers to what is intrinsically valuable relative ''to' ...
) and ensuring that entrepreneurs have an opportunity to compete in the
market economy A market economy is an economic system An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), distribution of goods and services wit ...
are often treated as important objectives. Competition law is closely connected with law on deregulation of access to markets, state aids and subsidies, the
privatization Privatization (or privatisation in British English British English (BrE) is the standard dialect of the English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, ea ...
of state owned assets and the establishment of independent sector regulators, among other market-oriented supply-side policies. In recent decades, competition law has been viewed as a way to provide better public services.
Robert Bork Robert Heron Bork (March 1, 1927December 19, 2012) was an American judge, government official, and legal scholar who served as the Solicitor General of the United States from 1973 to 1977. A professor at Yale Law School by occupation, he later se ...

Robert Bork
argued that competition laws can produce adverse effects when they reduce competition by protecting inefficient competitors and when costs of legal intervention are greater than benefits for the consumers.


History


Roman legislation

An early example was enacted during the
Roman Republic The Roman Republic ( la, Rēs pūblica Rōmāna ) was a state of the , run through of the . Beginning with the of the (traditionally dated to 509 BC) and ending in 27 BC with the establishment of the , Rome's control rapidly expanded durin ...
around 50 BC. To protect the grain trade, heavy fines were imposed on anyone directly, deliberately, and insidiously stopping supply ships.Wilberforce (1966) p. 20 Under
Diocletian Diocletian (; la, Gaius Aurelius Valerius Diocletianus; born Diocles; 22 December c. 244 – 3 December 311) was from 284 to 305. Born to a family of low status in , Diocletian rose through the ranks of the military to become a commander of ...
in 301 A.D., an
edict An edict is a decree or announcement of a law, often associated with monarchy, monarchism, but it can be under any official authority. Synonyms include "dictum" and "pronouncement". ''Edict'' derives from the Latin wikt:edictum#Latin, edictum. N ...
imposed the death penalty for anyone violating a tariff system, for example by buying up, concealing, or contriving the scarcity of everyday goods. More legislation came under the constitution of
Zeno Zeno or Zenon ( grc, Ζήνων) may refer to: People * Zeno (name), including a list of people and characters with the name Philosophers * Zeno of Elea (), philosopher, follower of Parmenides, known for his paradoxes * Zeno of Citium (333 – 2 ...
of 483 A.D., which can be traced into Florentine municipal laws of 1322 and 1325. This provided for confiscation of property and banishment for any trade combination or joint action of monopolies private ''or'' granted by the Emperor. Zeno rescinded all previously granted exclusive rights.Wilberforce (1966) p. 21
Justinian I Justinian I (; la, Flavius Petrus Sabbatius Iustinianus; grc-gre, Ἰουστινιανός ; 48214 November 565), also known as Justinian the Great, was the Byzantine emperor This is a list of the Byzantine emperors from the foundation o ...
subsequently introduced legislation to pay officials to manage state monopolies.


Middle Ages

Legislation in England to control monopolies and restrictive practices was in force well before the
Norman Conquest The Norman Conquest (or the Conquest) was the 11th-century invasion and occupation of England by an army made up of thousands of Normans, Duchy of Brittany, Bretons, County of Flanders, Flemish, and men from other Kingdom of France, French ...
. The
Domesday Book Domesday Book () – the spelling of "Doomsday Book" – is a manuscript record of the "Great Survey" of much of England and parts of Wales completed in 1086 by order of William I, known as . Domesday has long been associated with the Latin p ...
recorded that " foresteel" (i.e. forestalling, the practice of buying up goods before they reach market and then inflating the prices) was one of three forfeitures that
King Edward the Confessor Edward the Confessor ( ang, Ēadƿeard Andettere ; la, Eduardus Confessor , ; 1003 – 5 January 1066) was one of the last Anglo-Saxon The Anglo-Saxons were a cultural group who inhabited England England is a Countries of the ...

King Edward the Confessor
could carry out through England. But concern for fair prices also led to attempts to directly regulate the market. Under
Henry IIIHenry III may refer to: * Henry III, Duke of Bavaria (940–989) * Henry III, Holy Roman Emperor (1017–1056) * Henry III, Count of Louvain (died 1095) * Henry III, Count of Luxembourg (died 1096) * Henry III, Duke of Carinthia (1050–1122) * Henr ...

Henry III
an act was passed in 1266 to fix bread and ale prices in correspondence with grain prices laid down by the
assize The courts of assize, or assizes (), were periodic courts held around England and Wales England and Wales () is a legal jurisdiction covering England and Wales, two of the four countries of the United Kingdom, parts of the United Kingdom. England a ...

assize
s. Penalties for breach included
amercementAn amercement is a financial penalty in English law, common during the Middle Ages In the history of Europe, the Middle Ages or medieval period lasted from the 5th to the late 15th century. It began with the fall of the Western Roman Empir ...
s,
pillory The pillory is a device made of a wooden or metal framework erected on a post, with holes for securing the head and hands, formerly used for by and often further physical abuse. The pillory is related to the . Etymology The word is documen ...

pillory
and
tumbrel A tumbrel (alternatively tumbril) is a two-wheeled cart A cart or dray (Aus. & NZ) is a vehicle designed for transport Transport (commonly used in the U.K.), or transportation (used in the U.S.), is the Motion, movement of humans, animals ...

tumbrel
. A 14th-century statute labelled forestallers as "oppressors of the poor and the community at large and enemies of the whole country". Under
King Edward III Edward III (13 November 131221 June 1377), also known as Edward of Windsor before his accession, was King of England This list of kings and queens of the Kingdom of England The Kingdom of England was a sovereign state on the island ...

King Edward III
the
Statute of LabourersThe Statute of Labourers was a law created by the Parliament of England, English parliament under King Edward III of England, Edward III in 1351 in response to a labour (economics), labour shortage, which aimed at regulating the labour force by prohi ...
of 1349 fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. On top of existing penalties, the statute stated that overcharging merchants must pay the injured party double the sum he received, an idea that has been replicated in
punitive Punishment, commonly, is the imposition of an undesirable or unpleasant outcome upon a group or individual, meted out by an authority In the fields of sociology Sociology is the study of society, human social behaviour, patterns of soci ...
treble damages In United States law The law of the United States comprises many levels of codified and uncodified forms of law, of which the most important is the United States Constitution, which prescribes the foundation of the federal government of the Unite ...
under
US antitrust law In the United States, antitrust law is a collection of federal and state government laws that regulate the conduct and organization of business corporations and are generally intended to promote competition. The main statutes are the Sherman Ac ...
. Also under Edward III, the following statutory provision outlawed trade combination.
... we have ordained and established, that no merchant or other shall make Confederacy, Conspiracy, Coin, Imagination, or Murmur, or Evil Device in any point that may turn to the Impeachment, Disturbance, Defeating or Decay of the said Staples, or of anything that to them pertaineth, or may pertain.
In continental Europe, competition principles developed in ''
lex mercatoria ''Lex mercatoria'' (from the Latin Latin (, or , ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken in the area around Rome, known as Latium. Through the power ...
''. Examples of legislation enshrining competition principles include the ''constitutiones juris metallici'' by
Wenceslaus II Wenceslaus II Přemyslid ( cs, Václav II.; pl, Wacław II Czeski; 27 SeptemberK. Charvátová, ''Václav II. Král český a polský'', Prague 2007, p. 18. 1271 – 21 June 1305) was King of Bohemia The Duchy of Bohemia The Duchy of Bohem ...
of
Bohemia Bohemia ( ; cs, Čechy ; ; hsb, Čěska; szl, Czechy) is the westernmost and largest historical region Historical regions (or historical areas) are geography, geographical areas which at some point in time had a culture, cultural, ethnic gr ...

Bohemia
between 1283 and 1305, condemning combination of ore traders increasing prices; the Municipal Statutes of Florence in 1322 and 1325 followed
Zeno Zeno or Zenon ( grc, Ζήνων) may refer to: People * Zeno (name), including a list of people and characters with the name Philosophers * Zeno of Elea (), philosopher, follower of Parmenides, known for his paradoxes * Zeno of Citium (333 – 2 ...
's legislation against state monopolies; and under
Emperor Charles V Charles V, german: Karl V, it, Carlo V, nl, Karel V, la, Carolus V (24 February 1500 – 21 September 1558) was Holy Roman Emperor The Holy Roman Emperor, originally and officially the Emperor of the Romans ( la, Imperator Romanoru ...

Emperor Charles V
in the
Holy Roman Empire The Holy Roman Empire ( la, Sacrum Romanum Imperium; german: Heiliges Römisches Reich) was a multi-ethnic complex of territories in Western Western may refer to: Places *Western, Nebraska, a village in the US *Western, New York, a town i ...
a law was passed "to prevent losses resulting from monopolies and improper contracts which many merchants and artisans made in the Netherlands". In 1553,
Henry VIII of England Henry VIII (28 June 149128 January 1547) was King of England This list of kings and queens of the begins with , who initially ruled , one of the which later made up modern England. Alfred styled himself King of the from about 886, a ...
reintroduced tariffs for foodstuffs, designed to stabilize prices, in the face of fluctuations in supply from overseas. So the legislation read here that whereas,
it is very hard and difficult to put certain prices to any such things ...
t is necessary because T, or t, is the twentieth Letter (alphabet), letter in the English language, modern English English alphabet, alphabet and the ISO basic Latin alphabet. Its name in English is English alphabet#Letter names, ''tee'' (pronounced ), plural ''tee ...
prices of such victuals be many times enhanced and raised by the Greedy Covetousness and Appetites of the Owners of such Victuals, by occasion of ingrossing and regrating the same, more than upon any reasonable or just ground or cause, to the great damage and impoverishing of the King's subjects.
Around this time organizations representing various tradesmen and handicrafts people, known as
guild A guild is an association of artisan Wood carver in Bali An artisan (from french: artisan, it, artigiano) is a skilled craft worker who makes or creates material objects partly or entirely by hand. These objects may be functional ...
s had been developing, and enjoyed many concessions and exemptions from the laws against monopolies. The privileges conferred were not abolished until the Municipal Corporations Act 1835.


Early competition law in Europe

The English common law of
restraint of trade Restraints of trade is a common law doctrine relating to the enforceability of contractual restrictions on freedom to conduct business. It is a precursor of modern competition law Competition law is a law that promotes or seeks to maintain mar ...
is the direct predecessor to modern competition law later developed in the US. It is based on the prohibition of agreements that ran counter to public policy, unless the reasonableness of an agreement could be shown. It effectively prohibited agreements designed to restrain another's trade. The 1414 ''Dyer's'' is the first known restrictive trade agreement to be examined under English common law. A dyer had given a bond not to exercise his trade in the same town as the plaintiff for six months but the plaintiff had promised nothing in return. On hearing the plaintiff's attempt to enforce this restraint, Hull J exclaimed, "per Dieu, if the plaintiff were here, he should go to prison until he had paid a fine to the King". The court denied the collection of a bond for the dyer's breach of agreement because the agreement was held to be a restriction on trade. English courts subsequently decided a range of cases which gradually developed competition related case law, which eventually were transformed into
statute law Statutory law or statute law is written law passed by a body of legislature. This is as opposed to Oral law, oral or customary law; or regulatory law promulgated by the Executive (government), executive or common law of the judiciary. Statutes may ...
. Europe around the 16th century was changing quickly. The
new world The "New World" is a term for the majority of Earth Earth is the third planet from the Sun and the only astronomical object known to harbour and support life. 29.2% of Earth's surface is land consisting of continents and islands. The re ...
had just been opened up, overseas trade and plunder was pouring wealth through the international economy and attitudes among businessmen were shifting. In 1561 a system of Industrial Monopoly Licenses, similar to modern
patent A patent is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depe ...

patent
s had been introduced into England. But by the reign of
Queen Elizabeth I Elizabeth I (7 September 153324 March 1603) was Queen of England and Ireland Ireland ( ; ga, Éire ; Ulster-Scots: ) is an island upright=1.15, Great_Britain.html"_;"title="Ireland_(left)_and_Great_Britain">Ireland_(left)_an ...
, the system was reputedly much abused and used merely to preserve privileges, encouraging nothing new in the way of innovation or manufacture. In response English courts developed case law on restrictive business practices. The statute followed the unanimous decision in ''Darcy v. Allein'' 1602, also known as the Case of Monopolies, of the
King's bench The Queen's Bench (; or, during the reign of a male monarch, the King's Bench ('), is the superior court in a number of jurisdictions within some of the Commonwealth realms. The original King's Bench, founded in 1215 in England, was one of the ...
to declare void the sole right that Queen Elizabeth I had granted to Darcy to import playing cards into England. Darcy, an officer of the Queen's household, claimed damages for the defendant's infringement of this right. The court found the grant void and that three characteristics of
monopoly A monopoly (from Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none) is as described by Irving Fisher, a market with the "absence of competition", creating a situation where a specific ...

monopoly
were (1) price increases, (2) quality decrease, (3) the tendency to reduce artificers to idleness and beggary. This put an end to granted monopolies until
King James I James VI and I (James Charles Stuart; 19 June 1566 – 27 March 1625) was King of Scotland The monarch of Scotland was the head of state of the Kingdom of Scotland. According to tradition, the first King of Scots was Kenneth I MacAlpi ...

King James I
began to grant them again. In 1623 Parliament passed the
Statute of Monopolies The Statute of Monopolies was an Act of the Parliament of England The Parliament of England was the legislature A legislature is a deliberative assembly with the authority In the fields of sociology Sociology is the study of so ...
, which for the most part excluded
patent A patent is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depe ...

patent
rights from its prohibitions, as well as guilds. From
King Charles I of the King of the Romans (variant used in the early modern period) File:Nezahualpiltzintli.jpg, Aztec King Nezahualpiltzintli of Texcoco King is the title given to a male monarch in a variety of contexts. The female equivalent is queen re ...

King Charles I
, through the civil war and to , monopolies continued, especially useful for raising revenue. Then in 1684, in ''East India Company v. Sandys'' it was decided that exclusive rights to trade only outside the realm were legitimate, on the grounds that only large and powerful concerns could trade in the conditions prevailing overseas. The development of early competition law in England and Europe progressed with the diffusion of writings such as ''
The Wealth of Nations ''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the ''magnum opus 's ''The Creation of Adam'' (c. 1512), part of the Sistine Chapel ceiling The ...

The Wealth of Nations
'' by
Adam Smith Adam Smith ( 1723 – 17 July 1790) was a Scottish economist, philosopher as well as a moral philosopher Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and ...

Adam Smith
, who first established the concept of the ''
market economy A market economy is an economic system An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), distribution of goods and services wit ...
''. At the same time
industrialisation Factories, refineries, mines, and agribusiness are all elements of industrialisation Industrialisation ( alternatively spelled industrialization) is the period of social and economic change that transforms a human group from an agrarian societ ...

industrialisation
replaced the individual
artisan Wood carver in Bali An artisan (from french: artisan, it, artigiano) is a skilled craft worker who makes or creates material objects partly or entirely by hand. These objects may be functional or strictly decorative, for example fur ...

artisan
, or group of artisans, with paid labourers and machine-based production. Commercial success increasingly dependent on maximizing production while minimizing cost. Therefore, the size of a company became increasingly important, and a number of European countries responded by enacting laws to regulate large companies that restricted trade. Following the
French Revolution The French Revolution ( ) was a period of radical political and societal change in France France (), officially the French Republic (french: link=no, République française), is a country primarily located in Western Europe, consi ...

French Revolution
in 1789 the law of 14–17 June 1791 declared agreements by members of the same trade that fixed the price of an industry or labour as void, unconstitutional, and hostile to liberty. Similarly, the Austrian Penal Code of 1852 established that "agreements ... to raise the price of a commodity ... to the disadvantage of the public should be punished as misdemeanours". Austria passed a law in 1870 abolishing the penalties, though such agreements remained void. However, in Germany laws clearly validated agreements between firms to raise prices. Throughout the 18th and 19th centuries, ideas that dominant private companies or legal monopolies could excessively restrict trade were further developed in Europe. However, as in the late 19th century, a depression spread through Europe, known as the
Panic of 1873 The Panic of 1873 was a financial crisis that triggered an depression (economics), economic depression in Europe and North America that lasted from 1873 to 1877 or 1879 in France and in United Kingdom, Britain. In Britain, the Panic started two ...
, ideas of competition lost favour, and it was felt that companies had to co-operate by forming
cartels A cartel is a group of independent market participants who collude with each other in order to improve their profits and dominate the market. Cartels are usually associations in the same sphere of business, and thus an alliance of rivals. Mos ...
to withstand huge pressures on prices and profits.


Modern competition law

While the development of competition law stalled in Europe during the late 19th century, in 1889
Canada Canada is a country in the northern part of North America. Its Provinces and territories of Canada, ten provinces and three territories extend from the Atlantic Ocean, Atlantic to the Pacific Ocean, Pacific and northward into the Arctic Oce ...

Canada
enacted what is considered the first competition statute of modern times. The ''Act for the Prevention and Suppression of Combinations formed in restraint of Trade'' was passed one year before the United States enacted the most famous legal statute on competition law, the
Sherman Act 200px, Sen. R–List of United States Senators from Ohio">Ohio Ohio is a U.S. state, state in the Midwestern United States, Midwestern region of the United States. Of the List of states and territories of the United States, fifty states, ...
of 1890. It was named after Senator John Sherman who argued that the Act "does not announce a new principle of law, but applies old and well recognised principles of common law".


United States antitrust

The
Sherman Act 200px, Sen. R–List of United States Senators from Ohio">Ohio Ohio is a U.S. state, state in the Midwestern United States, Midwestern region of the United States. Of the List of states and territories of the United States, fifty states, ...
of 1890 attempted to outlaw the restriction of competition by large companies, who co-operated with rivals to fix outputs, prices and market shares, initially through ''pools'' and later through ''trusts''. Trusts first appeared in the US railroads, where the capital requirement of railroad construction precluded competitive services in then scarcely settled territories. This trust allowed railroads to discriminate on rates imposed and services provided to consumers and businesses and to destroy potential competitors. Different trusts could be dominant in different industries. The
Standard Oil Company Standard Oil Co. was an American petroleum, oil-producing, transporting, refining, and marketing company. Established in 1870 by John D. Rockefeller and Henry Flagler as a corporation in Ohio, it was the largest oil refiner in the world at its h ...
trust in the 1880s controlled several markets, including the market in
fuel oil Fuel oil (also known as heavy oil, marine fuel, bunker, furnace oil, or gasoil) is a fraction A fraction (from Latin ', "broken") represents a part of a whole or, more generally, any number of equal parts. When spoken in everyday English, a fr ...
,
lead Lead is a chemical element with the Symbol (chemistry), symbol Pb (from the Latin ) and atomic number 82. It is a heavy metals, heavy metal that is density, denser than most common materials. Lead is Mohs scale of mineral hardness#Intermediate h ...

lead
and
whiskey Whisky or whiskey is a type of distilled alcoholic beverage made from fermented grain A grain is a small, hard, dry seed, with or without an attached husk, hull or fruit layer, harvested for human or animal consumption. A grain crop is a gr ...
. Vast numbers of citizens became sufficiently aware and publicly concerned about how the trusts negatively impacted them that the Act became a priority for both major parties. A primary concern of this act is that competitive markets themselves should provide the primary regulation of prices, outputs, interests and profits. Instead, the Act outlawed anticompetitive practices, codifying the common law restraint of trade doctrine. Prof Rudolph Peritz has argued that competition law in the United States has evolved around two sometimes conflicting concepts of competition: first that of individual liberty, free of government intervention, and second a fair competitive environment free of excessive
economic power Economists An economist is a professional and practitioner in the social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individu ...
. Since the enactment of the Sherman Act enforcement of competition law has been based on various economic theories adopted by Government. Section 1 of the Sherman Act declared illegal "every contract, in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." Section 2 prohibits
monopolies A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none) is as described by Irving Fisher, a market with the "absence of competition", creating a situation whe ...
, or attempts and conspiracies to monopolize. Following the enactment in 1890 US court applies these principles to business and markets. Courts applied the Act without consistent economic analysis until 1914, when it was complemented by the
Clayton Act The Clayton Antitrust Act of 1914 (, codified at , ), was a part of United States antitrust law In the United States, antitrust law is a collection of federal and state government laws that regulate the conduct and organization of business corpor ...
which specifically prohibited exclusive dealing agreements, particularly tying agreements and interlocking directorates, and mergers achieved by purchasing stock. From 1915 onwards the ''
rule of reason The rule of reason is a legal doctrine A legal doctrine is a framework, set of rules, procedural steps, or test, often established through precedent in the common law, through which judgments can be determined in a given legal case. A doctrine ...
'' analysis was frequently applied by courts to competition cases. However, the period was characterized by the lack of competition law enforcement. From 1936 to 1972 courts' application of antitrust law was dominated by the '' structure-conduct-performance'' paradigm of the Harvard School. From 1973 to 1991, the enforcement of antitrust law was based on efficiency explanations as the Chicago School became dominant, and through legal writings such as Judge
Robert Bork Robert Heron Bork (March 1, 1927December 19, 2012) was an American judge, government official, and legal scholar who served as the Solicitor General of the United States from 1973 to 1977. A professor at Yale Law School by occupation, he later se ...

Robert Bork
's book '' The Antitrust Paradox''. Since 1992
game theory Game theory is the study of mathematical model A mathematical model is a description of a system A system is a group of Interaction, interacting or interrelated elements that act according to a set of rules to form a unified whole. ...
has frequently been used in antitrust cases. With the Hart–Scott–Rodino Antitrust Improvements Act of 1976, mergers and acquisitions came into additional scrutiny from U.S. regulators. Under the act, parties must make a pre-merger notification to the U.S. Department of Justice and Federal Trade Commission prior to the completion of a transaction. As of February 2nd, 2021, the FTC reduced the Hart-Scott-Rodino reporting threshold to $92 million in combined assets for the transaction.


European Union law

Competition law gained new recognition in Europe in the inter-war years, with Germany enacting its first anti-cartel law in 1923 and Sweden and Norway adopting similar laws in 1925 and 1926 respectively. However, with the
Great Depression The Great Depression was a severe worldwide economic depression An economic depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe economic downturn than a economic recession, recess ...
of 1929 competition law disappeared from Europe and was revived following the
Second World War World War II or the Second World War, often abbreviated as WWII or WW2, was a global war A world war is "a war War is an intense armed conflict between states State may refer to: Arts, entertainment, and media Literatur ...
when the United Kingdom and Germany, following pressure from the United States, became the first European countries to adopt fully fledged competition laws. At a regional level
EU competition law European competition law is the competition law Competition law is a law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. Competition law is implemented through public and private enforcem ...
has its origins in the
European Coal and Steel Community The European Coal and Steel Community (ECSC) was a European organisation An organization, or organisation ( Commonwealth English; see spelling differences), is an entity – such as a company A company, abbreviated as co., is a Lega ...

European Coal and Steel Community
(ECSC) agreement between France,
Italy Italy ( it, Italia ), officially the Italian Republic ( it, Repubblica Italiana, links=no ), is a country consisting of Italian Peninsula, a peninsula delimited by the Alps and List of islands of Italy, several islands surrounding it, whose ...

Italy
,
Belgium Belgium ( nl, België ; french: Belgique ; german: Belgien ), officially the Kingdom of Belgium, is a country in Western Europe Western Europe is the western region of Europe. The region's countries and territories vary depending on cont ...

Belgium
, the
Netherlands ) , national_anthem = ( en, "William of Nassau") , image_map = EU-Netherlands.svg , map_caption = , image_map2 = BES islands location map.svg , map_caption2 = , image_map3 ...

Netherlands
,
Luxembourg Luxembourg ( ; lb, Lëtzebuerg ; french: link=no, Luxembourg; german: link=no, Luxemburg), officially the Grand Duchy of Luxembourg, ; french: link=no, Grand-Duché de Luxembourg ; german: link=no, Großherzogtum Luxemburg is a landlocked ...

Luxembourg
and Germany in 1951 following the Second World War. The agreement aimed to prevent Germany from re-establishing dominance in the production of
coal Coal is a combustible black or brownish-black sedimentary rock, formed as stratum, rock strata called coal seams. Coal is mostly carbon with variable amounts of other Chemical element, elements, chiefly hydrogen, sulfur, oxygen, and nitrogen ...

coal
and
steel Steel is an alloy An alloy is an admixture of metal A metal (from Ancient Greek, Greek μέταλλον ''métallon'', "mine, quarry, metal") is a material that, when freshly prepared, polished, or fractured, shows a lustrous appe ...

steel
as it was felt that this dominance had contributed to the outbreak of the war. Article 65 of the agreement banned cartels and article 66 made provisions for concentrations, or mergers, and the abuse of a dominant position by companies. This was the first time that competition law principles were included in a plurilateral regional agreement and established the trans-European model of competition law. In 1957 competition rules were included in the
Treaty of Rome The Treaty of Rome, or EEC Treaty (officially the Treaty establishing the European Economic Community), brought about the creation of the European Economic Community (EEC), the best known of the European Communities (EC). The treaty was signed ...
, also known as the EC Treaty, which established the
European Economic Community The European Economic Community (EEC) was a regional organization and Turkey Turkey ( tr, Türkiye ), officially the Republic of Turkey, is a country straddling Southeastern Europe and Western Asia. It shares borders with Greece ...

European Economic Community
(EEC). The Treaty of Rome established the enactment of competition law as one of the main aims of the EEC through the "institution of a system ensuring that competition in the common market is not distorted". The two central provisions on EU competition law on companies were established in article 85, which prohibited anti-competitive agreements, subject to some exemptions, and article 86 prohibiting the abuse of dominant position. The treaty also established principles on competition law for member states, with article 90 covering public undertakings, and article 92 making provisions on state aid. Regulations on mergers were not included as member states could not establish consensus on the issue at the time. Today, the
Treaty of Lisbon The Treaty of Lisbon (initially known as the Reform Treaty) is an international agreement that amends the two treaties A treaty is a formal, legally binding written agreement between actors in international law International law, also ...
prohibits anti-competitive agreements in Article 101(1), including
price fixing #REDIRECT Price fixing#REDIRECT Price fixing Price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the pr ...
. According to Article 101(2) any such agreements are automatically void. Article 101(3) establishes exemptions, if the collusion is for distributional or technological innovation, gives consumers a "fair share" of the benefit and does not include unreasonable restraints that risk eliminating competition anywhere (or compliant with the
general principle of European Union law The general principles of European Union law are general principles of law which are applied by the European Court of Justice and the national courts of the member states when determining the lawfulness of legislative and administrative measures w ...
of proportionality). Article 102 prohibits the abuse of dominant position, such as price discrimination and exclusive dealing. Article 102 allows the
European Council The European Council (informally EUCO) is a collegiate body that defines the overall political directions and priorities of the European Union The European Union (EU) is a political and economic union of that are located primarily ...
regulations Regulation is the management of complex systems according to a set of rules and trends. In systems theory Systems theory is the interdisciplinary study of system A system is a group of Interaction, interacting or interrelated elements that a ...
to govern mergers between firms (the current regulation is the Regulation 139/2004/EC). The general test is whether a concentration (i.e. merger or acquisition) with a community dimension (i.e. affects a number of EU member states) might significantly impede
effective competitionEffective competition is a concept first proposed by John Maurice Clark, then under the name of "workable competition," as a "workable" alternative to the economic theory of perfect competition, as perfect competition is seldom observed in the real ...
. Articles 106 and 107 provide that member state's right to deliver public services may not be obstructed, but that otherwise public enterprises must adhere to the same competition principles as companies. Article 107 lays down a general rule that the state may not aid or subsidize private parties in distortion of free competition and provides exemptions for
charities A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being (e.g. educational, religious Religion is a social system, social-cultural system of designated religious behaviour, b ...
, regional development objectives and in the event of a
natural disaster A natural disaster is a major adverse event An adverse event (AE) is any untoward medical occurrence in a patient or clinical investigation subject administered a pharmaceutical product and which does not necessarily have a causal relationsh ...
. Leading cases on competition law include '' Consten & Grundig v Commission'' and '' United Brands v Commission''.


India

India responded positively by opening up its economy by removing controls during the
Economic liberalisation Economic liberalization (or economic liberalisation) is the lessening of government regulations and restrictions in an economy An economy (from Greek language, Greek οίκος – "household" and νέμoμαι – "manage") is an area of the ...
. In quest of increasing the efficiency of the nation's economy, the
Government of India The Government of India (ISO The International Organization for Standardization (ISO; ) is an international standard are technical standards developed by international organizations (intergovernmental organizations), such as Codex Aliment ...
acknowledged the
Liberalization Liberalization or Liberalisation (British English British English (BrE) is the standard dialect of the English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, earl ...
Privatization Privatization (or privatisation in British English British English (BrE) is the standard dialect of the English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, ea ...
Globalization Globalization, or globalisation (Commonwealth English The use of the English language English is a West Germanic languages, West Germanic language first spoken in History of Anglo-Saxon England, early medieval England, which ha ...

Globalization
era. As a result, Indian market faces competition from within and outside the country.Warrier VS, Conflict between Competition Law and Intellectual Property Right
Citation: 2010 (1) LW 2
The Lex-Warrier: Online Law Journal,
This led to the need of a strong legislation to dispense justice in commercial matters and
the Competition Act, 2002 The Competition Act, 2002 was enacted by the Parliament of India The Parliament of India ( IAST: ) is the supreme legislative body of the Republic of India. It is a bicameral legislature composed of the President of India and the two ho ...
was passed. The history of competition law in India dates back to the 1960s when the first competition law, namely the Monopolies and Restrictive Trade Practices Act (MRTP) was enacted in 1969. But after the economic reforms in 1991, this legislation was found to be obsolete in many aspects and as a result, a new competition law in the form of
the Competition Act, 2002 The Competition Act, 2002 was enacted by the Parliament of India The Parliament of India ( IAST: ) is the supreme legislative body of the Republic of India. It is a bicameral legislature composed of the President of India and the two ho ...
was enacted in 2003. The
Competition Commission of India The Competition Commission of India (CCI) is the chief national competition regulator A competition regulator is the institution that oversees the functioning of the markets. And the Law in which it takes cognizance of situations having any ty ...
, is the quasi judicial body established for enforcing provisions of the Competition Act.


International expansion

By 2008 111 countries had enacted competition laws, which is more than 50 percent of countries with a population exceeding 80,000 people. 81 of the 111 countries had adopted their competition laws in the past 20 years, signaling the spread of competition law following the collapse of the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a that spanned during its existence from 1922 to 1991. It was nominally a of multiple national ; in practice and were highly until its final years. The ...
and the expansion of the
European Union The European Union (EU) is a political and economic union of that are located primarily in . The union has a total area of and an estimated total population of about 447million. has been established through a standardised that apply in ...

European Union
. Currently competition authorities of many states closely co-operate, on everyday basis, with foreign counterparts in their enforcement efforts, also in such key area as information / evidence sharing. In many of Asia's developing countries, including India, Competition law is considered a tool to stimulate economic growth. In
Korea Korea is a region in East Asia. Since 1945, it has been divided between two countries at or near the 38th parallel north, 38th parallel, North Korea (the Democratic People's Republic of Korea) and South Korea (the Republic of Korea). Korea co ...

Korea
and
Japan Japan ( ja, 日本, or , and formally ) is an island country An island country or an island nation is a country A country is a distinct territory, territorial body or political entity. It is often referred to as the land of an in ...

Japan
, the competition law prevents certain forms of conglomerates. In addition, competition law has promoted fairness in China and Indonesia as well as international integration in Vietnam.
Hong Kong Hong Kong (; , ), officially the Hong Kong Special Administrative Region of the People's Republic of China (HKSAR), is a List of cities in China, city and Special administrative regions of China, special administrative region of China on the ...

Hong Kong
's Competition Ordinance came into force in the year 2015.


ASEAN member states

As part of the creation of the ASEAN Economic Community, the member states of the (ASEAN) pledged to enact competition laws and policies by the end of 2015. Today, all ten member states have general competition legislation in place. While there remains differences between regimes (for example, over merger control notification rules, or leniency policies for whistle-blowers), and it is unlikely that there will be a supranational competition authority for ASEAN (akin to the European Union), there is a clear trend towards increase in infringement investigations or decisions on cartel enforcement.


Enforcement

At a national level competition law is enforced through competition authorities, as well as private enforcement. The
United States Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States of America The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a cou ...

United States Supreme Court
explained:
Every violation of the antitrust laws is a blow to the free-enterprise system envisaged by Congress. This system depends on strong competition for its health and vigor, and strong competition depends, in turn, on compliance with antitrust legislation. In enacting these laws, Congress had many means at its disposal to penalize violators. It could have, for example, required violators to compensate federal, state, and local governments for the estimated damage to their respective economies caused by the violations. But, this remedy was not selected. Instead, Congress chose to permit all persons to sue to recover three times their actual damages every time they were injured in their business or property by an antitrust violation.
In the
European Union The European Union (EU) is a political and economic union of that are located primarily in . The union has a total area of and an estimated total population of about 447million. has been established through a standardised that apply in ...

European Union
, the Modernisation Regulation 1/2003 means that the
European Commission The European Commission (EC) is the executive branch The executive is the branch of government exercising authority in and holding Moral responsibility, responsibility for the governance of a State (polity), state. The executive executes a ...

European Commission
is no longer the only body capable of public enforcement of
European Union competition law European competition law is the competition law Competition law is a that promotes or seeks to maintain by regulating conduct by companies. Competition law is implemented through public and private enforcement. It is also known as ''anti- l ...
. This was done to facilitate quicker resolution of competition-related inquiries. In 2005 the Commission issued a
Green Paper In the United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to ...
on ''Damages actions for the breach of the EC antitrust rules'', which suggested ways of making private damages claims against cartels easier. Some EU Member States enforce their competition laws with criminal sanctions. As analysed by Professor Whelan, these types of sanctions engender a number of significant theoretical, legal and practical challenges. Antitrust administration and legislation can be seen as a balance between: * guidelines which are clear and specific to the courts, regulators and business but leave little room for discretion that prevents the application of laws from resulting in unintended consequences. * guidelines which are broad, hence allowing administrators to sway between improving economic outcomes versus succumbing to political policies to redistribute wealth. Chapter 5 of the post war
Havana Charter Havana (; Spanish Spanish may refer to: * Items from or related to Spain: **Spaniards, a nation and ethnic group indigenous to Spain **Spanish language **Spanish cuisine Other places * Spanish, Ontario, Canada * Spanish River (disambiguatio ...
contained an Antitrust code but this was never incorporated into the WTO's forerunner, the
General Agreement on Tariffs and Trade The General Agreement on Tariffs and Trade (GATT) is a between many countries, whose overall purpose was to promote by reducing or eliminating s such as or . According to its preamble, its purpose was the "substantial reduction of tariffs a ...
1947.
Office of Fair Trading , type = Non-ministerial government department , nativename = , nativename_a = , nativename_r = , logo = Office of Fair Trading (United Kingdom) (logo).png , logo_width = 255px , logo_caption = , seal = , seal_width = , seal_caption = , pi ...
Director and Professor Richard Whish wrote sceptically that it "seems unlikely at the current stage of its development that the WTO will metamorphose into a global competition authority". Despite that, at the ongoing Doha round of trade talks for the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade between nations. Governments use the organization to establish, revise, and enforce the rules that govern international ...
, discussion includes the prospect of competition law enforcement moving up to a global level. While it is incapable of enforcement itself, the newly established
International Competition Network The International Competition Network is an informal, virtual network that seeks to facilitate cooperation between competition law Competition law is a law that promotes or seeks to maintain market competition by regulating anti-competitive cond ...
(ICN) is a way for national authorities to coordinate their own enforcement activities.


Theory


Classical perspective

Under the doctrine of
laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system An economic system, or economic order, is a system of Production (economics), production, allocation of resources, resource allocation and Distribution (economics), d ...
, antitrust is seen as unnecessary as competition is viewed as a long-term dynamic process where firms compete against each other for market dominance. In some markets, a firm may successfully dominate, but it is because of superior skill or innovativeness. However, according to laissez-faire theorists, when it tries to raise prices to take advantage of its monopoly position it creates profitable opportunities for others to compete. A process of
creative destruction Creative destruction (German: ''schöpferische Zerstörung''), sometimes known as Schumpeter's gale, is a concept in economics Economics () is the social science that studies how people interact with value; in particular, the Production ( ...
begins which erodes the monopoly. Therefore, government should not try to break up monopoly but should allow the market to work. The classical perspective on competition was that certain agreements and business practice could be an unreasonable restraint on the individual liberty of tradespeople to carry on their livelihoods. Restraints were judged as permissible or not by courts as new cases appeared and in the light of changing business circumstances. Hence the courts found specific categories of agreement, specific clauses, to fall foul of their doctrine on economic fairness, and they did not contrive an overarching conception of market power. Earlier theorists like Adam Smith rejected any monopoly power on this basis.
A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly under-stocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate.
In ''
The Wealth of Nations ''An Inquiry into the Nature and Causes of the Wealth of Nations'', generally referred to by its shortened title ''The Wealth of Nations'', is the ''magnum opus 's ''The Creation of Adam'' (c. 1512), part of the Sistine Chapel ceiling The ...

The Wealth of Nations
'' (1776)
Adam Smith Adam Smith ( 1723 – 17 July 1790) was a Scottish economist, philosopher as well as a moral philosopher Ethics or moral philosophy is a branch of philosophy that "involves systematizing, defending, and recommending concepts of right and ...

Adam Smith
also pointed out the cartel problem, but did not advocate specific legal measures to combat them.
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.Smith (1776) Book I, Chapter 10, para 82
By the latter half of the 19th century, it had become clear that large firms had become a fact of the market economy.
John Stuart Mill John Stuart Mill (20 May 1806 – 7 May 1873), also cited as J. S. Mill, was an English philosopher, Political economy, political economist, Member of Parliament (United Kingdom), Member of Parliament (MP) and civil servant. One of the most i ...
's approach was laid down in his treatise ''
On Liberty ''On Liberty'' is a philosophical essay by the English philosopher John Stuart Mill John Stuart Mill (20 May 1806 – 7 May 1873), usually cited as J. S. Mill, was an List of British philosophers, English philosopher, Political economy, p ...
'' (1859).
Again, trade is a social act. Whoever undertakes to sell any description of goods to the public, does what affects the interest of other persons, and of society in general; and thus his conduct, in principle, comes within the jurisdiction of society... both the cheapness and the good quality of commodities are most effectually provided for by leaving the producers and sellers perfectly free, under the sole check of equal freedom to the buyers for supplying themselves elsewhere. This is the so-called doctrine of Free Trade, which rests on grounds different from, though equally solid with, the principle of individual liberty asserted in this Essay. Restrictions on trade, or on production for purposes of trade, are indeed restraints; and all restraint, qua restraint, is an evil...


Neo-classical synthesis

After Mill, there was a shift in economic theory, which emphasized a more precise and theoretical model of competition. A simple neo-classical model of free markets holds that production and distribution of goods and services in competitive free markets maximizes
social welfare Welfare (or commonly, social welfare) is a type of government support intended to ensure that members of a society can meet basic human needs Maslow's hierarchy of needs is an idea in psychology Psychology is the science of mind and b ...
. This model assumes that new firms can freely enter markets and compete with existing firms, or to use legal language, there are no
barriers to entry In theories of competition Competition arises whenever two or more parties strive for a common goal A goal is an idea of the future or desired result that a person or a group of people envision, Planning, plan and commit to achieve. Peop ...
. By this term economists mean something very specific, that competitive free markets deliver allocative,
productive Productivity describes various measures of the efficiency Efficiency is the (often measurable) ability to avoid wasting materials, energy, efforts, money, and time in doing something or in producing a desired result. In a more general sense, i ...

productive
and dynamic efficiency. Allocative efficiency is also known as
Pareto efficiency Pareto efficiency or Pareto optimality is a situation where no individual or preference criterion can be better off without making at least one individual or preference criterion worse off or without any loss thereof. The concept is named after Vi ...
after the Italian economist
Vilfredo Pareto Vilfredo Federico Damaso Pareto ( , , , ; born Wilfried Fritz Pareto; 15 July 1848 – 19 August 1923) was an Italian civil engineer A civil engineer is a person who practices civil engineering Civil engineering is a Regulation and licensur ...

Vilfredo Pareto
and means that resources in an economy over the
long runIn economics the long run is a theoretical concept in which all markets are in economic equilibrium, equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long run contrasts with the short run, in which there are ...
will go precisely to those who are willing and to pay for them. Because rational producers will keep producing and selling, and buyers will keep buying up to the last marginal unit of possible output – or alternatively rational producers will be reduce their output to the margin at which buyers will buy the same amount as produced – there is no waste, the greatest number wants of the greatest number of people become satisfied and
utility As a topic of economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of society, societies and the Social relation, relationships among individuals within thos ...
is perfected because resources can no longer be reallocated to make anyone better off without making someone else worse off; society has achieved allocative efficiency. Productive efficiency simply means that society is making as much as it can. Free markets are meant to reward those who work hard, and therefore those who will put society's resources towards the frontier of its possible production. Dynamic efficiency refers to the idea that business which constantly competes must research, create and innovate to keep its share of consumers. This traces to Austrian-American political scientist
Joseph Schumpeter Joseph Alois Schumpeter (; February 8, 1883 – January 8, 1950) was an Austrian political economist. He was born in Moravia Moravia ( , also , ; cs, Morava ; german: link=no, Mähren ; pl, Morawy ; szl, Morawijo; la, Moravia) is a h ...
's notion that a "perennial gale of creative destruction" is ever sweeping through
capitalist Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, a price s ...

capitalist
economies, driving enterprise at the market's mercy. This led Schumpeter to argue that monopolies did not need to be broken up (as with
Standard Oil Standard Oil Co. was an American -producing, transporting, refining, and marketing . Established in 1870 by and as a in , it was the largest in the world at its height. Its history as one of the world's first and largest s ended in 1911, wh ...

Standard Oil
) because the next gale of economic innovation would do the same. Contrasting with the allocatively, productively and dynamically efficient market model are monopolies, oligopolies, and cartels. When only one or a few firms exist in the market, and there is no credible threat of the entry of competing firms, prices rise above the competitive level, to either a monopolistic or oligopolistic equilibrium price. Production is also decreased, further decreasing
social welfare Welfare (or commonly, social welfare) is a type of government support intended to ensure that members of a society can meet basic human needs Maslow's hierarchy of needs is an idea in psychology Psychology is the science of mind and b ...
by creating a
deadweight loss Image:Deadweight-loss-price-ceiling.svg, 250px, Deadweight loss created by a binding price ceiling. The producer surplus always decreases, but the consumer surplus may or may not increase; however, the decrease in producer surplus must be greater th ...
. Sources of this market power are said to include the existence of
externalities In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
,
barriers to entry In theories of competition Competition arises whenever two or more parties strive for a common goal A goal is an idea of the future or desired result that a person or a group of people envision, Planning, plan and commit to achieve. Peop ...
of the market, and the
free rider problem In the social sciences, the free-rider problem is a type of market failure In neoclassical economics, market failure is a situation in which the allocation of goods and services by a free market is not Pareto efficient, often leading to a net ...
. Markets may
fail The 1895 alt= Failure is the state or condition of not meeting a desirable or intended objective, and may be viewed as the opposite of success. The criteria for failure depends on context, and may be relative to a particular observer or beli ...
to be efficient for a variety of reasons, so the exception of competition law's intervention to the rule of ''
laissez faire ''Laissez-faire'' (; ; from french: laissez faire, lit=let do) is an economic system in which transactions between private groups of people are free from or almost free from any form of economic interventionism Economic interventionism, somet ...
'' is justified if
government failure Government failure, in the context of public economics Public economics (or economics of the public sector) is the study of government policy through the lens of economic efficiencyIn microeconomics, economic efficiency is, roughly speaking, a sit ...
can be avoided. Orthodox economists fully acknowledge that
perfect competition In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
is seldom observed in the real world, and so aim for what is called " workable competition". This follows the theory that if one cannot achieve the ideal, then go for the second best option by using the law to tame market operation where it can.


Chicago school

A group of economists and lawyers, who are largely associated with the
University of Chicago The University of Chicago (UChicago) is a private university, private research university in Chicago, Illinois. Founded in 1890, its main campus is located in Chicago's Hyde Park, Chicago, Hyde Park neighborhood. In Fall 2021, it enrolled 18,45 ...
, advocate an approach to competition law guided by the proposition that some actions that were originally considered to be anticompetitive could actually promote competition. The
U.S. Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States of America The United States of America (USA), commonly known as the United States (U.S. or US), or America, is a coun ...

U.S. Supreme Court
has used the Chicago school approach in several recent cases. One view of the Chicago school approach to antitrust is found in United States Circuit Court of Appeals Judge
Richard Posner Richard Allen Posner (; born January 11, 1939) is an American jurist and law and economics scholar who served as a United States federal judge, federal appellate judge on the United States Court of Appeals for the Seventh Circuit, U.S. Court of Ap ...
's books ''Antitrust Law'' and ''Economic Analysis of Law''.
Robert Bork Robert Heron Bork (March 1, 1927December 19, 2012) was an American judge, government official, and legal scholar who served as the Solicitor General of the United States from 1973 to 1977. A professor at Yale Law School by occupation, he later se ...

Robert Bork
was highly critical of court decisions on United States antitrust law in a series of law review articles and his book '' The Antitrust Paradox''. Bork argued that both the original intention of antitrust laws and economic efficiency was the pursuit ''only'' of consumer welfare, the protection of competition rather than competitors.Bork (1978), p. 405. Furthermore, only a few acts should be prohibited, namely cartels that fix prices and divide markets, mergers that create monopolies, and dominant firms pricing predatorily, while allowing such practices as vertical agreements and price discrimination on the grounds that it did not harm consumers. Running through the different critiques of US antitrust policy is the common theme that government interference in the operation of free markets does more harm than good. "The only cure for bad theory," writes Bork, "is better theory."
Harvard Law School Harvard Law School (HLS) is the of in . Founded in 1817, it is the oldest continuously operating law school in the United States and one of the most prestigious in the country. Each class in the three-year program has approximately 560 st ...
professor Philip Areeda, who favours more aggressive antitrust policy, in at least one Supreme Court case challenged Robert Bork's preference for non-intervention.


Practice


Collusion and cartels


Dominance and monopoly

When firms hold large market shares, consumers risk paying higher prices and getting lower quality products than compared to competitive markets. However, the existence of a very high market share does not always mean consumers are paying excessive prices since the threat of new entrants to the market can restrain a high-market-share firm's price increases. Competition law does not make merely having a monopoly illegal, but rather abusing the power that a monopoly may confer, for instance through exclusionary practices. First, it is necessary to determine whether a firm is dominant, or whether it behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer". Under EU law, very large market shares raise a presumption that a firm is dominant, which may be rebuttable. If a firm has a dominant position, then there is "a special responsibility not to allow its conduct to impair competition on the common market". Similarly as with collusive conduct, market shares are determined with reference to the particular market in which the firm and product in question is sold. Then although the lists are seldom closed, certain categories of abusive conduct are usually prohibited under the country's legislation. For instance, limiting production at a shipping port by refusing to raise expenditure and update technology could be abusive. Tying one product into the sale of another can be considered abuse too, being restrictive of consumer choice and depriving competitors of outlets. This was the alleged case in ''Microsoft v. Commission'' leading to an eventual fine of million for including its
Windows Media Player Windows Media Player (WMP) is a media player and media library application developed by Microsoft Microsoft Corporation is an American multinational Multinational may refer to: * Multinational corporation, a corporate organization oper ...
with the
Microsoft Windows Microsoft Windows, commonly referred to as Windows, is a group of several proprietary {{Short pages monitor A merger or acquisition involves, from a competition law perspective, the concentration of economic power in the hands of fewer than before. This usually means that one firm buys out the
shares In financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known ...
of another. The reasons for oversight of economic concentrations by the state are the same as the reasons to restrict firms who abuse a position of dominance, only that regulation of mergers and acquisitions attempts to deal with the problem before it arises, ''ex ante'' prevention of market dominance. In the United States merger regulation began under the Clayton Act, and in the European Union, under the Merger Regulation 139/2004 (known as the "ECMR"). Competition law requires that firms proposing to merge gain authorization from the relevant government authority. The theory behind mergers is that transaction costs can be reduced compared to operating on an open market through bilateral contracts. Concentrations can increase
economies of scale 330px, As quantity of production increases from Q to Q2, the average cost of each unit decreases from C to C1. LRAC is the long-run average cost In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their sca ...

economies of scale
and scope. However often firms take advantage of their increase in market power, their increased market share and decreased number of competitors, which can adversely affect the deal that consumers get. Merger control is about predicting what the market might be like, not knowing and making a judgment. Hence the central provision under EU law asks whether a concentration ''would'', if it went ahead, "significantly impede effective competition... in particular as a result of the creation or strengthening off a dominant position..." and the corresponding provision under US antitrust states similarly,
No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital... of the assets of one or more persons engaged in commerce or in any activity affecting commerce, where... the effect of such acquisition, of such stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly.
What amounts to a substantial lessening of, or significant impediment to competition is usually answered through empirical study. The market shares of the merging companies can be assessed and added, although this kind of analysis only gives rise to presumptions, not conclusions. The Herfindahl-Hirschman Index is used to calculate the "density" of the market, or what concentration exists. Aside from the maths, it is important to consider the product in question and the rate of technical innovation in the market. A further problem of collective dominance, or
oligopoly An oligopoly (from Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country located in Southeast Europe. Its population is approximately 10.7 mi ...
through "economic links" can arise, whereby the new market becomes more conducive to
collusion Collusion is a deceitful agreement or secret cooperation between two or more parties to limit open competition by deceiving, misleading or defrauding others of their legal right. Collusion is not always considered illegal. It can be used to att ...
. It is relevant how transparent a market is, because a more concentrated structure could mean firms can coordinate their behavior more easily, whether firms can deploy deterrents and whether firms are safe from a reaction by their competitors and consumers. The entry of new firms to the market, and any barriers that they might encounter should be considered. If firms are shown to be creating an uncompetitive concentration, in the US they can still argue that they create efficiencies enough to outweigh any detriment, and similar reference to "technical and economic progress" is mentioned in Art. 2 of the ECMR. Another defense might be that a firm which is being taken over is about to fail or go insolvent, and taking it over leaves a no less competitive state than what would happen anyway. Mergers vertically in the market are rarely of concern, although in ''AOL/Time Warner'' the
European Commission The European Commission (EC) is the executive branch The executive is the branch of government exercising authority in and holding Moral responsibility, responsibility for the governance of a State (polity), state. The executive executes a ...

European Commission
required that a joint venture with a competitor
Bertelsmann Bertelsmann is a German private Private or privates may refer to: Music * "In Private "In Private" was the third single in a row to be a charting success for United Kingdom, British singer Dusty Springfield, after an absence of nearly two ...
be ceased beforehand. The EU authorities have also focused lately on the effect of
conglomerate merger A conglomerate merger is "any merger In corporate finance, mergers and acquisitions (M&A) are transactions in which the ownership of Company, companies, other business organizations, or their operating units are transferred or Consolidation (bu ...
s, where companies acquire a large portfolio of related products, though without necessarily dominant shares in any individual market.


Intellectual property, innovation and competition

Competition law has become increasingly intertwined with
intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depending on the nature of the property, an owner of ...
, such as
copyright Copyright is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. ...

copyright
,
trademark A trademark (also written trade mark or trade-mark) is a type of intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual pr ...

trademark
s,
patent A patent is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depe ...

patent
s,
industrial design right An industrial design right is an intellectual property right that protects the visual design of objects that are not purely utilitarian. An industrial design consists of the creation of a shape, configuration or composition of pattern or color, or ...
s and in some jurisdictions
trade secret Trade secrets are a type of intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more ...
s. It is believed that promotion of
innovation Innovation is the practical implementation of ideas A mental representation (or cognitive representation), in philosophy of mind Philosophy of mind is a branch of philosophy that studies the ontology and nature of the mind and its relation ...

innovation
through enforcement of intellectual property rights may promote as well as limit competitiveness. The question rests on whether it is legal to acquire monopoly through accumulation of intellectual property rights. In which case, the judgment needs to decide between giving preference to intellectual property rights or to competitiveness: * Should antitrust laws accord special treatment to intellectual property. * Should intellectual rights be revoked or not granted when antitrust laws are violated. Concerns also arise over anti-competitive effects and consequences due to: * Intellectual properties that are collaboratively designed with consequence of violating antitrust laws (intentionally or otherwise). * The further effects on competition when such properties are accepted into industry standards. * Cross-licensing of intellectual property. * Bundling of intellectual property rights to long-term business transactions or agreements to extend the market exclusiveness of intellectual property rights beyond their statutory duration. *
Trade secrets Trade secrets are a type of intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more ...
, if they remain a secret, having an eternal length of life. Some scholars suggest that a prize instead of patent would solve the problem of deadweight loss, when innovators got their reward from the prize, provided by the government or non-profit organization, rather than directly selling to the market, see
Millennium Prize Problems The Millennium Prize Problems are seven problems in mathematics Mathematics (from Ancient Greek, Greek: ) includes the study of such topics as quantity (number theory), mathematical structure, structure (algebra), space (geometry), and cal ...
. However, innovators may accept the prize only when it is at least as much as how much they earn from patent, which is a question difficult to determine.Suzanne Scotchmer: "Innovation and Incentives" the MIT press, 2004 (Chapter 2).


See also

*
Consumer protection Consumer protection is the practice of safeguarding buyers of goods and services, and the public, against unfair practices in the . Consumer protection measures are often established by law. Such laws are intended to prevent businesses from eng ...
*
European Union competition law European competition law is the competition law Competition law is a that promotes or seeks to maintain by regulating conduct by companies. Competition law is implemented through public and private enforcement. It is also known as ''anti- l ...
* '''' (book) * Institute for Consumer Antitrust Studies * Irish Competition law * List of competition regulators *
List of countries' copyright length Copyright Copyright is a type of intellectual property that gives its owner the exclusive right to make copies of a creative work, usually for a limited time. The creative work may be in a literary, artistic, educational, or musical form. Co ...
* Relevant market *
Resale price maintenance Resale price maintenance (RPM) or, occasionally, retail price maintenance is the practice whereby a manufacturer and its distribution (marketing), distributors agree that the distributors will sell the manufacturer's product at certain prices (res ...
*
Sherman Antitrust Act The Sherman Antitrust Act of 1890 (, ) is a United States antitrust law In the United States, antitrust law is a collection of federal and state government laws that regulate the conduct and organization of business corporations and are genera ...
* SSNIP *
United States antitrust law In the United States, antitrust law Competition law is a that promotes or seeks to maintain by regulating conduct by companies. Competition law is implemented through public and private enforcement. It is also known as ''anti- law'' in Chi ...
*
Megacorporation Image:Vereenigde Oostindische Compagnie spiegelretourschip Amsterdam replica.jpg, 200px, Replica of an East Indiaman of the Dutch East India Company/United East India Company (VOC). The VOC is often considered to be the world's first true multinatio ...


Notes


References

* (1978) '' The Antitrust Paradox'', New York Free Press * _____ (1993). ''The Antitrust Paradox'' (second edition). New York: Free Press. . * (1999
"The Business Community's Suicidal Impulse"
''Cato Policy Report'', 21(2), pp. 6–7 (scroll down & press +). * Galbraith Kenneth (1967) ''The New Industrial State'' * Harrington, Joseph E. (2008). "antitrust enforcement," ''
The New Palgrave Dictionary of Economics ''The New Palgrave Dictionary of Economics'' (2018), 3rd ed., is an twenty-volume reference work on economics Economics () is a social science Social science is the Branches of science, branch of science devoted to the study of soc ...
'', 2nd Edition
Abstract.
* Mill, John Stuart (1859) ''
On Liberty ''On Liberty'' is a philosophical essay by the English philosopher John Stuart Mill John Stuart Mill (20 May 1806 – 7 May 1873), usually cited as J. S. Mill, was an List of British philosophers, English philosopher, Political economy, p ...
'' * Posner, Richard (2001) ''Antitrust Law'', 2nd ed.,
Preview.
* _____ (2007) ''Economic Analysis of Law'' 7th ed., * Prosser, Tony (2005) ''The Limits of Competition Law'', ch.1 * * Schumpeter, Joseph (1942) ''The Process of Creative Destruction'' * (1776) '''' onlin
from the Adam Smith Institute
* Wilberforce, Richard, Alan Campbell and Neil Elles (1966) ''The Law of Restrictive Practices and Monopolies'', 2nd edition, London: Sweet and Maxwell * Whish, Richard (2003) ''Competition Law'', 5th Ed. Lexis Nexis Butterworths


Further reading

* ''Competition Policy International'', , available at https://web.archive.org/web/20071127034131/http://www.globalcompetitionpolicy.org/ * Elhauge, Einer, Geradin, Damien (2007) ''Global Competition Law and Economics'', * Faull, Jonathan, Nikpay, Ali (eds) (2007) "Faull & Nikpay : The EC Law of Competition," * Georg Erber, Georg, Kooths, Stefan, '"Windows Vista: Securing Itself against Competition?'," in: ''DIW Weekly Report'', 2/2007, Vol.3, 7–14. * Hylton, Keith N., et al., "Antitrust World Reports'," available at https://web.archive.org/web/20080724022203/http://www.antitrustworldwiki.com/ {{Authority control Welfare economics