Antitrust is a Necessity for a Free Market
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As OPEC+ (a cartel of oil producing countries) has decided to once again manipulate the market by cutting oil output, it seems like a great time to have a discussion about antitrust and why it should matter to the everyday person. Antitrust is needed to maintain a fully functioning, stable, competitive and fair, free market system. All economies must figure out how to use scarce resources to make needed products and then how to distribute those products among its members. We use a market system approach, which allows consumers and producers to respond via the interplay of supply and demand. However, for the free market system to function properly we need to maintain a competitive marketplace that decentralizes and disperses power. Antitrust is necessary to achieve this goal.
A free competitive market uses supply and demand as the necessary scale for resource allocation and income distribution instead of allowing the government, companies, or people the power to make those determinations. This allows fairness in that anyone can enter the market with the only limit being their own talent and skill. Consumers then determine what products should be successful. This has the effect of improving quality and spurring innovation as sellers must compete with each other to provide the best product and earn the consumers business. If one entity is allowed to control the market or monopolise it, the market ceases to be free, its power is not dispersed.
To get an idea of how this works, take for example a farmer who notices that his community is lacking reasonably priced oranges and decides to grow and sell cheaper oranges. As long as the market is free and competitive he would be able to enter the market with his cheaper oranges and then consumers would decide if they prefer his oranges to the more expensive brand. However, if the market was controlled by a major corporation that happened to own the small orange grove in a nearby state that was producing the higher priced oranges, that corporation could prevent the farmer from entering the market by placing unreasonable restrictions on market entry (for example the corporation demands stores selling the oranges to only sell the corporation’s oranges or they will remove all of their other products from the store). The market would no longer be free and competitive because not everyone could overcome the entry restrictions placed by the corporation (for this example most people buy their oranges from the grocery store, the grocery store refuses to sell the farmer’s oranges due to the corporation’s demand, the farmer could attempt to sell his oranges from his farm, but is unlikely to be successful as most people buy their oranges from the store, thus the farmer is being unfairly restricted from market entry by not having the opportunity to sell his oranges at the store and directly compete with the corporation’s oranges). The corporation is consolidating orange market power to itself instead of allowing it to be dispersed amongst more sellers.
Another tactic that the corporation could use to prevent competition is to engage in predatory pricing. This means that because its a corporation and has lots of revenue from other sources, it could drop the price of its oranges to an extremely unprofitable level in order to drive the farmer (or any other competitor) out of the market. For example the corporation was selling a bag of oranges for $7 but drops the price to $1. The farmer has no other sources of revenue and can not drop his price lower than $5 without going bankrupt. Consumers choose the cheaper version even though it may not be the better product and the farmer is eventually driven out of the market and once the farmer is gone, the corporation raises the price of its oranges to $9 as there is no longer any competition. The problem here is that the corporation is not setting a fair price, instead it is accepting an unsustainable loss in order to get rid of the competition. Again this has the effect of allowing one entity (the corporation) to determine the market instead of the market regulating itself by allowing consumers to choose the better product and the allowable price.
Regarding the OPEC+ cartel, the countries involved supply a great deal of oil to the world. The goal of those countries is to cooperate with each other in order to set the price and/or inflate demand for oil, and is another example of market manipulation. For example if the countries cut their supply (the amount of oil they are selling) the price of oil will automatically increase because there will be less oil available. And because these countries provide a lot of the oil in the world, there is not much to prevent them from this obvious market manipulation. Thus, it is not the market and consumers determining the value of the product, but the sellers conspiring together to manipulate the value. The power of the free market is not dispersed among competitors whose products are competing against each other, but instead is centralised within one group which then determines the parameters of the market.
Antitrust provides a legal way to remedy these unfair trade practices in order to maintain a free and competitive market. It allows the government the power to investigate and sue entities that are manipulating the market. It is necessary that the government is involved in antitrust regulation because of the power and money some entities have, smaller businesses and individuals just cannot afford to bring lawsuits against them. Looking back at the examples above, a small farmer will not have the resources necessary to sue a major corporation in order to maintain a free market, nor would the average individual consumer have any way to retaliate against countries manipulating the oil market. Instead it is necessary for the government which has the resources to provide enforcement of antitrust policies to protect the free, competitive marketplace. The government can also provide the funding and incentives to find alternative sources of energy, so that in the future we do not have to rely on other countries. So if we want to maintain reasonably priced, quality goods, while protecting small businesses and spurring innovation, we need strong antitrust policies and a government willing to enforce them. Antitrust is a necessity for everyone.