Benefits and Effectiveness of Antitrust Laws Essay

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Antitrust Laws: Benefits, Importance, And Effectiveness

Standard economic theory holds that sufficient competition is a vital ingredient for the effective functioning of markets, without which unscrupulous players would be better placed to not only obtain monopoly power, but also impede on allocative efficiency by setting prices in their favor (Updegrove, 2007). In order to prevent this and ensure the maintenance of sufficient competition, governments enact antitrust and competition laws and put in place special institutions to oversee the enforcement of the same (Updegrove, 2007). Antitrust laws, therefore, seek to foster sufficient competition within markets by preventing the emergence of cartels and monopolies. However, in spite of this theoretic economic rationale, there still is a fierce debate about the effectiveness and practicability of antitrust laws.

Benefits of Competition

Competition fosters efficiency because it drives service providers to not only venture, but to also initiate and innovate, so as to respond better to the needs and expectations of customers, and hence maintain market share (Baer, 2013). Service providers, to this end, strive to allocate production resources in a way that minimizes costs while maximizing welfare, since rational consumers would always expect a provider to offer high-quality products at the lowest possible costs. In this way, resources are optimally-allocated both at the firm and industry levels (Baer, 2013).

The second benefit of competition is that it weeds out the slow, the incompetent, and the failures, leaving the innovative, dynamic and the fast-to-respond to run the market (Baer, 2013). This 'economic selection' benefits the economy, in its entirety; to consumers, it ensures that they get access to the very best in terms of product quality and timely service delivery; and to producers, it drives self-improvement and pushes an enterprise to modernize its strategies as well as production processes to be at par with market standards (Baer, 2013).

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Competition is the reason why consumers today are in a position to purchase electronic equipment such as PCs at almost half the amount it would have cost them seven years ago. New PC producers enter the global market on an almost daily basis and competition increases on an almost proportionate scale. Having seen the role played by competition in today's marketplace, it would be prudent to outline some of the benefits of antitrust laws, upon which the concept of sufficient competition draws its framework.

Importance of Antitrust and Competition Laws

The overriding objective of antitrust laws is to ensure that consumers have access to the highest quality of products at the lowest possible price (Baer, 2013). The most significant antitrust laws in the U.S. include the Sherman Act of 1890, the Clayton Act of 1914, the Wilson Tariff Act, the National Cooperative Research and Production Act of 1993, the Celler-Kafauver Anti-merger Act, and the Robinson-Patman Antidiscrimination Act of 1936 (Updegrove, 2007).

Antitrust laws create favorable business environments, making it possible for any prospective investor to venture into the market and set the prices for their products depending on their individual business standards (Updegrove, 2007). In the absence of antitrust laws, well-established entities would come together and form cartels or mergers, making it difficult for potential entrants to venture into the market. The Antitrust….....

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