Business Competition: Laws and Policies

Businesses compete with one another for only one reason: to get a consumer's attention.

While competition is healthy, some companies engage in predatory business practices. These illegal practices hurt not only consumers but other businesses as well.

This article discusses what competition means for the industry, antitrust and consumer laws.

What is Business Competition?

Business competition is a process that involves businesses in the same field competing with one another. This sort of game happens for all types of industries, in any sector. Think of smartphones and its business assets for a better understanding of how businesses compete.

Competition among businesses offering the same products or services is good for everybody. It adds vibrancy, options, and freedom of choice to the marketplace. It forces companies to become better at what they do, which is better for both consumers and the industry as a whole.

Business competition is also good for the economy. When there are more options to choose from, more people from all sectors of society will be able to pay for goods and services.

Marketing and Competition Laws in the United States

These laws are called Antitrust Laws in most jurisdictions.

Plenty of countries have antitrust laws that regulate how companies operate. These laws protect consumers from unfair trade practices and prevent monopolies. Antitrust laws provide a level playing field for businesses in the same industry.

In the United States, marketing and competition laws fall under the purview of the big three Antitrust Laws:

(Source: United States Department of Justice, Investopedia)

The Sherman Antitrust Act

  • This Act exists to prevent unreasonable "contracts, combinations, and conspiracies that restrain trade."
  • This Act includes "competitor agreements to rig bids, fix prices and allocate consumers."
  • The Sherman Act also criminalizes "monopolization, attempted monopolization or conspiracy to monopolize."
  • Sherman Antitrust Act violations carry severe consequences. Hefty fines of up to $100 million for corporations and $1 million for individuals, plus a ten-year prison term await violators.

The Federal Trade Commission Act

  • This Act prohibits "unfair methods of competition and unfair or deceptive acts or practices."
  • Violations of the Sherman Antitrust Act also violate the Federal Trade Commission Act.
  • The FTC cannot technically enforce the Sherman Antitrust Act. However, it can bring cases under the FTC Act that violate the Sherman Act.
  • Violation of the Federal Trade Commission Act carries no criminal penalties.

The Clayton Antitrust Act

  • This Act helps address certain practices that the Sherman Antitrust Act does not cover.
  • The Act "prohibits mergers or acquisitions that are likely to lessen competition."
  • Under the Clayton Act, the Government can "challenge those mergers that are likely to increase prices to consumers."
  • The Act prohibits business practices that may harm the competition.
  • The Clayton Act is a civil statute that carries no criminal penalties.

U.S. Consumer Protection

In the United States, there are laws exist at the state and federal level that regulate consumer welfare. The rules share a common goal of ensuring fair trade, accurate information in the marketplace and protecting the consumer.

Among these consumer protection laws are the:

  • Federal Food, Drug and Cosmetic Act
  • Fair Debt Collection Practices Act
  • Fair Credit Reporting Act
  • Truth in Lending Act
  • Fair Credit Billing Act
  • Gramm-Leach-Bliley Act

Enforcement of these laws fall under the jurisdiction of the following agencies:

  • Federal Trade Commission
  • Consumer Financial Protection
  • Food and Drug Administration
  • U.S. Department of Justice

Many states have adopted the Uniform Deceptive Trade Practices Act. Deceptive trade practices Act prohibits the following:

  1. Unfair or fraudulent business practice
  2. Untrue or misleading advertising

A majority of the states also have a Department of Consumer Affairs dedicated to regulating specific industries and protecting consumers. Unfortunately, plenty of consumers are not familiar with consumer protection and antitrust laws. These laws have saved consumers billions of dollars each year and protected their interests.

The Importance of Antitrust Laws

Antitrust or competition laws are essential to prevent unfair business practices. These statutes are in place to ensure that fair competition is prevalent in an open-market economy. These laws adapted and evolved along with the market since its inception.

Antitrust laws safeguard entire industries from disruptions and monopolies that can stagnate growth. The applications of these laws cover a wide range of questionable business practices such as:

  1. Bid rigging
  2. Market allocation
  3. Price fixing
  4. Monopolies

If laws such as these did not exist, consumers would pay more and have minimal options. Entire markets would stagnate, and industries would not bother to innovate or offer better products and services.

Conclusion

Antitrust laws champion consumer welfare and uphold fair business practices. Laws such as the Sherman Antitrust Act, the Federal Trade Commission Act and the Clayton Act have helped shape the landscape of business.

These laws have protected consumers and competitors against corporate greed and market manipulation. Antitrust laws prevent business practices that deprive consumers of the benefits of competition.