Market Powers and Antitrust Practices
The goals of antitrust laws are to make corporations compete fairly and are intended to prevent monopolies and encourage competition. A company that has market power can change prices to benefit their company. Other companies will follow their example. In the antitrust investigation against Apple, Inc. , Apple’s collusion with publishers increased its market power considerably, essentially high jacking the e-book market. With the ever-evolving technological advances, judges in antitrust cases must incorporate the longstanding antitrust laws to fit with today’s practices.
Apple Antitrust Investigation The company Apple, Inc. , found itself being investigated by the Federal Trade Commission for alleged violations of the Sherman Act. The antitrust investigation centered on claims that Apple acted in collusion with five major book publishing companies to raise the price of e-books, thereby forcing its main competitor, Amazon, to raise their prices as well. Publishers had “concerns that Amazon’s prices diminished the value of the publishers’ hard-copy books sold through traditional book stores” (Neill, 2013).
According to Fisher (2013), Apple offered an “agency model” in which publishers set the retail price, and Apple would take 30% commission, causing prices on e-books to be driven up by 18%. Apple’s collusion violated the antitrust laws and took advantage of consumers. “Apple’s actions resulted in consumers paying millions of dollars more for e-books because pricing power was taken away from e-book retailers like Amazon. com and Barnes and Noble” (Seitz, 2013).
Apple was new to the e-book market and was attempting to gain an edge over their competition. Antitrust Decision At the conclusion of the Apple antitrust investigation, it was found that Apple acted in violation of the Sherman Act. A hearing was called to decide damages and punishment however; Apple intends to appeal the decision. Ultimately, if Apple does not win on appeal, they face harsh pecuniary damages.
According to the Federal Trade Commission (2013), violations of the Sherman Act imposes criminal penalties of up to $100 million for a corporation and can include up to 10 years in prison. “Under federal law, the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million” (FTC, 2013). It was found that as a new firm in the e-book industry, Apple was charging 18% over retail value on e-books.
Apple’s price fixing practice forced their competitor, Amazon, to raise their prices. Consumers were impacted by the inflated e-book prices and are likely to be compensated. According to Raymond (2014), a non-pecuniary cost associated with the antitrust behavior of Apple, Inc. is that they have to deal with a court ordered monitor until their case is appealed. Apple has complained that the lawyer who is supposed to monitor them has been intrusive and they don’t appreciate that he makes $1,100/hour. Monopolies and Oligopolies
Monopolies are most often viewed negatively because they cause higher prices for consumers which can also lead to inferior products. Oligopolies prices are found to be lower than a monopolies’. Oligopolies lower prices with the intention of keeping new firms out and there are major barriers of entry. In some cases a monopoly can be beneficial to society through economies of scale. For example, in an oil company, the average cost of producing their product decreases as its output increases. This can result in a lower price for consumers.
Oligopolies are generally not good for society because they deter from competition and choice. Conclusion In conclusion, violators of the Sherman Act, like Apple, face high pecuniary costs. Antitrust laws are in place to protect free market enterprise and allow for healthy competition, which is the backbone of our capitalist society. While monopolies and oligopolies are generally both viewed negatively, in some instances they have benefits to society. Maintaining fair competitiveness in industries gives security to the economy.
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