Antitrust investigation is the process of controlling monopolies in the market situation. The practice of monopoly by firms in most cases causes inefficiencies in the market the reason as to why it has to be checked. The monopolists take advantage of being the few suppliers in the market and set their own higher prices above the competitive market price set by the market forces of demand and supply. In the recent time two oil companies have been at the center of investigation.
The Statoil as well as Royal Dutch Shell, BP companies been probed into the setting of oil prices affecting the global market oil rates. A major antitrust authority in Europe has been investigating the high price setting claims in the two oil companies BP Shell and Statoil. This has been the most recent case of antitrust behavior in the global oil market. The price reporting authorities were also associated with the probe as they partnered with the two companies to manipulate the published prices for their own personal gains and interests. According to a statement if the Financial Times LTD; “The London offices of Platts, the world’s leading price reporting agency, were also raided on Tuesday, while ENI of Italy said it had received a request for information from Brussels, although its offices were not searched” (Makan, Blas & Spiege, 2013). The investigation into the price setting happened just a few days after one of the major Europe’s energy partners got worried about the undesired pricing of both the crude and oil products.
The BP shell and Statoil companies’ antitrust behavior of setting prices has led to both pecuniary (those related to money) and non pecuniary costs. The pecuniary and non pecuniary costs have impacted negatively on both the individual consumers of oil as well as on the economies of nations. Price-reporting companies put out data that add force to billions of dollars of trading in crude as well as refined oil products, natural gas, biofuels and electricity adding to the household energy expenses (Blas, 2013). The households have to dip more into their fixed salaries. This reduces the disposable income for an economy and hence the economy’s deterioration. It denies the consumers the diversity of choosing from a variety of products.
The Sherman and the Clayton Antitrust Acts in the United States of America restrain the behavior of particular antitrust behavior by businesses. The Sherman Act prohibits monopolies against anti competitive behaviors that affect the consumer. The Act specifically disregards any attempts by a firm to extend the cost of a good to the consumer validating the antitrust authority’s move to raid the two oil companies. The Clayton Act prohibits the price discrimination of products as well as merging of two companies to act as one so as to practice monopoly. The BP Shell and the Statoil companies merged to set high oil price to the consumers. Through this Act the Antitrust authority was justified to raid the companies for their price setting antitrust behavior.
The china government has acted the major role of determining oil prices. A new administration has just got into office and one of its first agendums of the main economy of the world has decided to minimize the influence of the government on such decisions. The government determines on interest rates, the exchange rate and as well as the price of energy causing a big misallocation of capital and uneven growth (Barboza & Buckley, 2013, p.2). The China government action shows how price setting by oil firms can cost the economy.
Despite the antitrust behavior being considered as to cause inefficiencies in the economy, there are cases where having a monopoly or oligopoly may actually benefit the society. Consider the Apple Inc, company high i-phone prices. The company enjoys monopoly from differentiation and uniqueness of its products. It is therefore able to set high prices without acting in a way suggesting anti competitive. Instead the company is able to raise higher revenue from its widely preferred global market. Part of this revenue is paid as tax to the US government which redistributes it to the society though provision of essential services such as healthcare.
A Report on the above Findings
A monopoly market structure will always cause always cause inefficiencies in the market. The BP shell and Statoil companies’ antitrust behavior of price fixing has led to both pecuniary (those related to money) and non pecuniary costs. The pecuniary and non pecuniary costs have impacted negatively on both the individual consumers of oil as well as on the economies of nations. An oligopoly market structure will only involve a few firms in the market which may try to merge or conduct them so as to gain market power as monopolists.
The BP Shell and the Statoil companies formed a collusion to set oil prices creating an imperfect competition to the other firms. The conduct of the firms could also pose a challenge of entry into the market by other firms which will find it costly and less profitable to venture into such a market. The economic profit is reduced through the increased cost of production which only makes them the price takers. The marginal cost is likely to exceed the marginal profit in such a scenario which will cause loss. The oil industry has cases of X-inefficiency due to the reduced pressure of competition considering the operational costs of the industry as the entry barriers.
Natural monopoly may occur where by a firm holds to majority of the sale gains in a market. Bp Shell and Statoil companies tried to set the price so that they could control much of the sales in the market and attain natural monopoly. Government monopoly occurs whereby a nation’s government gets itself or a private company the authority to solely control a certain commodity or service. The government determines on interest rates, the exchange rate and as well as the price of energy causing a big misallocation of capital and uneven growth (Barboza & Buckley, 2013, p.2). The china government has acted the major role of determining oil prices. This is likely to affect the tax increasing the Deadweight Loss to the Society.
References
Barboza, D., & Buckley, C. (2013, May 24). China Plans to Reduce the State’s Role in the Economy. The New York Times [New York].
Blas, J. (2013, May 14). Oil inquiry widens to trading houses. The financial Times LTD[London].
Makan, A., Blas, J., & Spiege, P. (2013, May 14). European Commission raids oil groups over price benchmarks. The financial Times LTD [London].
