Business Ethics Antitrust Law
Business Ethics Antitrust Law
Introduction
The antitrust laws aim at ensuring that all businesses in a given market play by the same rules. This is so because businesses in a free market may achieve the near-monopoly status via their own merits such as creating better production processes, offering the best quality service and decreasing costs among others. However, antitrust laws set vivid boundaries for fairness in the business by prohibiting practices that control free trading. It also restrains dominant firms from abusing their market position. The antitrust laws offer regulatory review of business mergers, acquisitions and joint ventures to ensure they do not breach the rules of fair competition. Therefore, the antitrust laws apply to business of all sizes in all economic sectors and the penalties for participating in such practices can be steep. This means both the business and individual officers can be charged with a criminal offense can be fined and individual can be imprisoned, fine or both when found guilty. Having an organization grasp of diverse antitrust laws in the most countries can help in understanding how the government has acted to maintain fair competition. Although the antitrust laws, especially in the United States were enacted more than a century ago, they still govern how big business behaves in the market, especially if that conduct relates to maintaining American markets as free and open as possible to encourage competition. Therefore, in this paper, we examine the origins of the antitrust law, which still makes headlines today, and the government regulatory process in business ethics antitrust law Antitrust laws Origins and Regulation process
Antitrust laws have historically been linked with countries that employ a free-market capitalist economy. This is an economic system where competition and the market forces of demand and supply establishes economic results. This historical association is evident from the fact that the countries that first adopted national antitrust laws like the United States and Canada are the ones that have long embraced a market economy. For instance, in 1890, the United States government became involved in ensuring fair competition when congress enacted the Sherman Antitrust Act. During this period, several state laws prohibited firms from owning stock in other firms. In order to get around those laws in Ohio, an attorney for Standard Oil formed a trust in 1882 to govern the business owned by standard Oil (Bowie & Schneider, 2011). The shares of all Standard Oil properties were put in the trust and stockholders received certificates with details of the consolidated earnings of the properties that composed the trust. From this arrangement, the Standard Oil Trust became a monopoly because the trustees controlled all the trust companies. This led to other industries such as Tobacco and railroads to copy Standard Oil’s lead in forming trusts. Although the Sherman Antitrust Act was used against labor unions, it was 1901 when the federal government pursues business trusts under the acts. Despite being amended and updated several times over the past years, the Sherman Antitrust Act still offers the basis for the most the United States competition laws.
In the United States, which is stronghold of free-market capitalism and the first countries to enact an antitrust law, the role of antitrust legislation in maintaining the capitalist features is under the Supreme Court. The antitrust law is vital as the preservation of economic freedom and free enterprise system as the bill of rights is for the protection of the fundamentals personal freedom. Such a response is relevant, given that the American Antitrust law, the Sherman Act was enacted in 1890 to protect economic competition from gradual growing trusts (Parakkal, 2013).
Although the social and political ideologies have changed significantly since the passing of the Sherman Act, the fact remains that antitrust law is seen as the key to protecting consumers against anticompetitive behavior. This unethical behavior of business includes increasing prices, reducing output and preventing innovation and economic growth. Similarly, it is understood that competition is a public good and government intervention is a need to protect society against anticompetitive conduct. Therefore, the government power via enforcement of antitrust statutes is required to rein corporate power in order to protect economic competition and capitalism.
Based on international view, the idea that antitrust laws serve as a legislative safeguard against anticompetitive practices is not exclusive to the regulatory environment of the United states. This is so because many countries have employed antitrust laws for the same objective, among others. In additional, for the developing and transition countries that have adopted antitrust laws, these laws are seen as tools to enhance economic development. However, the view that antitrust law is meant to protect and promote competition has seriously criticized, especially since the publication in 1978 of the antitrust paradox (Parakkal, 2013). This arose from the challenges in deciding which values should be promoted via the application of antitrust laws, which include consumer welfare and business efficiency.
Even before the antitrust laws paradox, scholars commenting on the court’s verdict in the predominant united states verse Alcoa antitrust case of 1945, had observed the court was going against the American society. This is so because the court applied the Sherman act to rule against Alcoa’s monopoly status, which was seen as destroying the features of the competition that make competition possible and desirable. The main argument in this case was that the Sherman Act was outdated in an age when economic concentration resulted from ethical, technological innovations rather than from unethical financial schemes (Bowie & Schneider, 2011). Although some of these dilemmas have been resolved since antitrust paradox and others, recent literature too questions the capacity of antitrust laws to serve as a tool to protect and promote competition. The argument was based on the corporate resources wasted on lobbying the government and the court's discretion in defining features of an antitrust case.
The climax of the recent opposition to antitrust laws happened in 1999 when 240 economists based in America wrote an open letter to the Bill Clinton against the antitrust activism of the federal government’s antitrust authorities which include the federal trade commission and department of Justice’s antitrust division among others. Therefore, these criticisms indicate that capitalism by itself does not explain the adoption of antitrust laws. This is so because there are other factors that influence the adoption of antitrust laws such as democracy. This is demonstrated by the developing countries which have switched from a statist to a free-market economic system as a result of a democratic polity which influences the adoption of national antitrust laws.
The significance of legal origin of various measures of economic performance has recently received considerable attention in the research of comparative institutional economics. The research indicates that countries with legal systems based on common law have more developed financial markets than civil law countries. This is so because common law produces faster development via greater security of property and contract rights. At their core, these studies suggest that the correct legal process is vital for competent financial markets, which in turn is relevant for economic development. Although this line of research has made important progress in finding the relationship between legal origin and financial development, the quantitative evidence on the impact of legal origin on antitrust enforcement is still scattered and varied. For instance, the research indicates that legal tradition does not significantly explain cross-country differences in the performance of antitrust policy (Tay-Cheng, 2012). Therefore, the effectiveness of antitrust is associated with two interrelated channels via which legal origin influences antitrust enforcement.
Legal theories mainly emphasize two channels via which the differences in legal origin can influence economic development. First, the political channel contends that English common law evolves to protect the independence of regulatory agencies against executive government. However, the French civil law highlights the efficiency to surrender adjudicatory powers to a government-controlled agency. The studies indicate that the historical process of legal systems in France and England early in the 12thand 13th century shaped how these systems maintain the independence of the judiciary. This is so because these two countries opted for diverse levels of control that the sovereign employed over law enforcers. The French civil law moved in the direction of an adjudication by less independent agencies, while English common law moved toward adjudication via relatively independent agencies. Thus, the political channel suggests that differences in the independence of the competition authority comprise of the major mediating channel via which legal origin can influence antitrust effectiveness (Tay-Cheng, 2012). Since common law emphasizes an independent judiciary more than the civil law, the former tends to support the antitrust effectiveness to a greater magnitude than the latter.
Second, the adaptability channel emphasizes that legal traditions differ based on their responsiveness to changing socioeconomic conditions. English common law stresses case law, customs and usage rather than legislative enactments. The judges can habitually interpret and shape the law as new situation emerge. However, under French civil law, judges basically apply the law and not interpret the law. Therefore, the adaptability channel focuses on the differences between these two regimes based on substantive decisional standards (Tay-Cheng, 2012). In the civil law tradition, law is set forth in legislation such that enforcement of antitrust law is more legislation-bound compared to the civil law traditions which is less flexible in the sense that any changes require legislative changes. Since inflexible legal tradition can produce a gap between legal capabilities and commercial needs, the adaptability channels assume that the countries that applies French civil law are more likely to develop an inefficient competition law regime than those that applies British common law.
Antitrust law in Digital industry
The implementation of competition and consumer protection laws have focused on industries linked to digital and the internet. The Microsoft unethical case a decade ago was just the start because there are several such cases recently. For instance, recent investigations have addressed the behavior by Google, the merger of digital music giants EMI and Universal, and the alleged e-books conspiracy by Apple. Other cases portraying unethical behavior include privacy and data security violations by Facebook and Twitter and IP portfolio acquisitions among others. Therefore, the enforcement agencies’ main antitrust concern is on digital markets, which are being dominated by firms that keep their market power via anticompetitive conduct and acquisitions (Ferrell & Fraedrich, 2013). This concern has been mainly relevant for firms that serve as digital platforms.
The current innovations and economic structure of the internet and related markets raises a significant question for competition policy. People want to know whether antitrust enforcement in digital industries can product consumers without interfering in complex businesses that are both increasing quickly and not fully comprehend. Thus, there is much at stake in defining reasonable competition policy for a digital platform markets (Shelanski, 2013). For instance, antitrust actions that preserve monopoly bottlenecks and prohibit competitor will make consumers and suppliers worse off. On the other hand, stiff competition and innovation will bring consumers the gains of new products and best price.
Challenges Facing Antitrust Regulation
The main challenge for antitrust enforcers is to differentiate the bad anticompetitive behavior from the aggressive and precompetitive behavior. Several courts have found antitrust violations claims based on deception, and the supreme court has suggested that deception can represent an antitrust infringement under particular circumstances. This is so because business deception can take a variety of forms and can cause a variety of anticompetitive harms such as fostering monopoly, raising prices and reducing consumer surplus among others. For instance, deception of consumers can lead to a fraudster to win sales adequate to achieve monopoly power (Ferrell & Fraedrich, 2013). This is so because no one would dispute that a fraudster can succeed a person sale by falsely persuading a consumer that his or her product is superior compared to rivals’. Therefore, if one buyer can be taken in by a deception, there is no reason that a deceiver could win entire portion of the market with a particular persuasive deception.
Since promulgating deception may be cheaper than actually creating a superior product, deception can be a mainly effective method of gaining sales and avoiding competitors. Moreover, deception can be especially effective in markets in which quality claims are hard to verify like a high-tech industry. Deception by a dominant firm in order to attain monopoly power or by a monopolist hoping to sustain its monopoly power can be effective. This is so because a large firm would have the resources to spread a deception widely and effectively.
In additional, deception of consumers can impair rivals’ efficiency by depriving them the economies of scale. In most industries, a firm must attain a particular volume sales to achieve its highest potential efficiency. Therefore, when a deception manages to reduce sales from a competitor, it can deprive that competitor the sales required to achieve its minimum efficient scale. As a result, the competitor will have higher costs, which it will pass on to consumers via higher prices. Since deception enhances monopoly power not only by increasing the deceiver’s efficiency, but also by impairing rival’s efficiency, it constitutes exclusionary behavior which is worthy of condemnation.
Lack of precompetitive justification is another challenge facing Antitrust law. Although deception can cause anticompetitive harm, it has no redeeming value or precompetitive justifications. Thus, since deception lacks precompetitive value it has relevance to two areas of antitrust doctrine. First, it regards agreements in restraint of trade under section one where many categories of business agreements are evaluated under the rule of reason. This rule considers an agreement’s potential precompetitive and anticompetitive effects in judging whether it constitutes an unreasonable restraint of trade. Agreements to deceive cannot be saved by precompetitive effects in the rule of reason analysis because no such effects exist. Second, courts will only find offense of monopolization under section two if the defendant committed some sort of unethical behavior (Ferrell & Fraedrich, 2013). However, courts may excuse and even applaud the achievement of monopoly power via superior product. In this case, even if a plaintiff demonstrates an anticompetitive effect of the defendant’s behavior, the monopolist may offer a precompetitive justification for its behavior. Since deception has no redeeming virtues, no such justifications will be available.
Conclusion
In a recap, firms that do not comply with business ethics have to deal with antitrust laws in their countries. However, Multinational Corporation has to deal with antitrust laws in several countries, which are not always consistent. For example, the United State antitrust law focuses on competition in the marketplace rather than the effect of anticompetitive practices on consumer. On the other hand, European laws give consumers more weight in establishing if business practices violate fair competition principles. Therefore, the support of the antitrust laws of any country starts with understanding that the vital factor is market competition. The presence of a competitive market is critical to attaining the efficiency levels that the business seeks. Therefore, competitive forces need to be protected to discipline the market players, especially the dominant ones. By preventing and punishing anticompetitive practices by market players, an antitrust law protects and promotes market competition.
References
Bowie, N. E., & Schneider, M. (2011). Business ethics for dummies. Hoboken: John Wiley.
Ferrell, O. C., Fraedrich, J. (2013). Business ethics: Ethical decision making and cases. Mason, OH: South-Western/Cengage Learning.
Parakkal, R. (2013). Capitalism, democratic capitalism, and the pursuit of antitrust laws. The Antitrust Bulletin, 58 (4), 693-729.
Shelanski, H. (2013). Information, Innovation, And Competition Policy For The Internet. University of Pennsylvania Law Review, 161(9), 1663-1705.
Tay-Cheng, M. (2012). Legal tradition and antitrust effectiveness. Empirical Economics,43(6), 1263–1297.
