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The Anti Trust Laws And Monopoly Economics Essay

Monopoly is the condition when there is one enterprise or a person is the only supplier in the market.


Profit Maximization: Maximizes profits.

Price Maker: Decides the price of the good or product to be sold.

High Barriers to Entry: Other sellers are unable to enter the market of the monopoly.

Single seller: In a monopoly there is one seller of the good that produces all the output. Therefore, the whole market is being served by a single company, and for practical purposes, the company is the same as the industry.

Price Discrimination: A monopolist can change the price and quality of the product. He sells more quantities charging less price for the product in a very elastic market and sells less quantities charging high price in a less elastic market.

Why is monopoly inefficient in the market?

The standard case against monopoly is that the monopoly price is higher than both marginal and average costs leading to a loss of allocative efficiency and a failure of the market mechanism. The monopolist is extracting a price from consumers that is above the cost of resources used in making the product and, consumers’ needs and wants are not being satisfied, as the product is being under-consumed. [1]


deadweight welfare loss

Source : Riley ,Geoff; Eton College, September 2006 ,http://tutor2u.net/economics/revision-notes/a2-micro-monopoly-economic-efficiency.html taken on 2012-08-28.

The monopolist is able to charge a higher price restrict total output and thereby reduce economic welfare. The rise in price to Pmon reduces consumer surplus.  Some of this reduction in consumer welfare is a pure transfer to the producer through higher profits, but some of the loss is not reassigned to any other economic agent. This is known as the deadweight loss and is equal to the area ABC.

Here figure 2 shows the combined graph of the competitive market and monopoly. A monopolist would choose to produce less ie Q1 in order to charge higher prices i.e P1. Therefore the monopoly leads to artificial scarcity,which is nothing but Dead weight loss.


iagram which makes the working assumption of constant long run average and marginal costs under both competition and monopoly.

How consumers are exploited in monopolies

Since monopolies are the only provider, they can set pretty much any price they choose, regardless of demand, because they know the consumer has no choice. They can also supply inferior products.

In order to avoid we have Antitrust laws for the welfare of the consumers.

Origin of the antitrust laws



Methods Used:

How the competition commission or teh federal laws prove that the mopolies are abusive

Anti Trust Law:

Are set of rules and regulations designed to promote a competitive economy by prohibiting actions that restrain, or are likely to restrain, competition, and by restricting the forms of allowable market structure [2] .

The antitrust laws therefore forbid the wrongful acquisition or preservation of monopoly power.

They also govern proposed mergers and acquisitions that are sufficiently large to constitute a threat to competition, and they address commercial practices that pose an arguable danger to competition on the merits in a properly defined antitrust market [3] .

Principles of Anti Trust Laws:

Prohibiting and restricting free trading and competition between businesses. This includes in particular the repression of free trade caused by cartels,

banning abusive behaviour by a firm dominating a markets like predatory pricing, tying, price gouging, refusal to deal, and many others

Supervising the mergers and acquisitions of large corporations, including some joint ventures. E.g.: Giving license.

Protecting the interests of consumers (consumer welfare) and ensuring that entrepreneurs have an opportunity to have a fair competition.


Anti Trust Law in US

There are two basic antitrust laws in the United States -the Sherman Act and the Clayton Act both are enforceable either by the Antitrust Division of the Department of Justice, the Federal Trade Commission or private persons alleging economic injury caused by violation.

United States vs. Microsoft

The law and economics of United States vs. Microsoft, is a landmark case of antitrust intervention in network industries. The Sherman’s antitrust law in the areas that apply to the Microsoft case are of

Section 1:

“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony. [5]

Section 2:

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal [6] .

The U.S. District Court came out several allegations on Microsoft based on their functions in the networking industries such as

1. The relevant antitrust market is the PC operating systems market for Intel compatible computers.

2. Microsoft has a monopoly in this market “where it enjoys a large and stable market share.

3. Microsoft’s monopoly is protected by the applications barrier to entry, which the judge defines as the availability of an abundance of applications running Windows.

4. Microsoft used its monopoly power in the PC operating systems market to

exclude rivals and harm competitors.

5. Microsoft hobbled the innovation process.

6. Microsoft’s actions harmed consumers.

7. Various Microsoft contracts had anti-competitive implications, but Microsoft is not guilty of anti-competitive exclusive dealing contracts hindering the distribution of Netscape Navigator.

Based on those allegations the Microsoft was sued by United States department of justice and 19 states, that

(i) It monopolized the market for operating systems of personal computers and took anti-competitive actions to illegally maintain its monopoly.

(ii) It attempted to monopolize the market for Internet browsers because such browsers would create competition for operating systems;

(iii) It bundled its browser (Internet Explorer) with Windows; and that it engaged in a number of other anti-competitive exclusionary arrangements.

Microsoft Defence:

Microsoft stated that the combination of Microsoft Windows and Internet Explorer was the fruit of innovation and those two were of same product an linked together. It was just competing hard against Netscape, that such competition was welfare-enhancing, and that it did not commit any anti-competitive Act and monopoly power in operating the market. It also stated that it is a leader in software innovation and that it has enhanced rather than hobbled the innovation process. [7]

Anti Trust Law in EUROPE

As the European Union has grown, its methods of antitrust enforcement have evolved. The antitrust laws of European Union are quite similar to those of United States. Article 81 of the Treaty of the European Community concerns restraints of trade much like Section 1 of Sherman Act. Article 82, which focuses on the abuses of market power by dominant firms, is similar in many ways to Section 2 of the Sherman Act. Finally, with respect to mergers, the European Merger Control Act is similar in spirit to Section 7 of Clayton Act.

The Commission accepted the joint selling of sport media rights by football associations on behalf of football clubs, provided certain conditions were fulfilled. These include, inter alia, the sale of sport media rights through open and transparent tender procedures, a limitation of the rights’ duration and the breaking down of the rights into different packages to allow several competitors to acquire rights [8] .

Antitrust and EU law are gaining significance for two reasons. Firstly, antitrust law continues to infiltrate daily business practice. The number of companies involved in, for example, administrative fine proceedings, is constantly rising. Secondly, the continuing enlargement of the EU enhances the importance of EU law. Most legal issues cannot be dealt with appropriately without considering the EU law background. antitrust and EU law clients are medium sized and large companies from all branches as well as public authorities and their companies, as the latter are in principle also subject to antitrust law. “In the United States, the main focus of antitrust law is protecting the consumer; in Europe, it is preserving competition” [9] .

Anti Trust Law in INDIA

Monopolies and Restrictive Trade Practices (MRTP) Act:

The MRTP Act (1969) is regarded as the competition law of India, because it defines a restrictive trade practice which has, or may have the effect of preventing, distorting or restricting competition in any manner [10]

MRTP has become obsolete pertaining to international economic developments relating to competition law and there was a need of law which curbs monopolies and promotes competition.

The Competition Act has replaced the Monopolies and Restrictive Trade Practices Act, 1969 and has dissolved the Monopolies and Restrictive Trade Practices Commission.

The Competition Act, 2002 was passed by the Parliament in the year 2002, to which the President accorded assent in January, 2003. It was subsequently amended by the Competition (Amendment) Act, 2007.

In accordance with the provisions of the Amendment Act, the Competition Commission of India and the Competition Appellate Tribunal have been established. The Competition Commission of India is now fully functional with a Chairperson and six members. The provisions of the Competition Act relating to anti-competitive agreements and abuse of dominant position were notified on May 20, 2009 [11]


It prevents practices having adverse effect on competition and protects consumers.

It prohibits enterprises from entering into anti-competitive agreements, and abusing their dominant position and forming combinations.

It looks into if any firm violates the act or if any complaint is filed.

Powers of CCI

CCI has the power to grant interim relief and award compensation.

Impose penalty.

To levy penalty if opposed or making false statements or omission information, etc. [12]

Division of dominant enterprise

CCI can recommend the Central Government division of a dominant enterprise to ensure that it does not abuse its position. On the recommendation, the Central Government under Section 28 may direct division of such an enterprise.

Extent of penalty

For abusing its dominant position or entering in anticompetitive agreements, CCI can levy penalty to the extent of 10 per cent of the average of the turnover for the preceding three financial years. The penalty is higher in case of such abuses by cartels and penalty can be equivalent to three times of the amount of profits made out of such agreement by the cartel or ten per cent of the average turnover of the cartel for the preceding three financial years [13] .

Appeal from CCI.-any person aggrieved by decision or order of CCI may file an appeal to the Supreme Court within 60 days from the date of the communication of the decision or order

Competition Law and Indian Pharmaceutical Industry

The Indian Pharmaceutical Industry is among top five producers of bulk drugs in the

World. Pharmaceuticals market can be roughly classified into Bulk drugs (20% of the

market) registering growth rates of 20% and formulations (80% of the market) with an annual growth rate of 15%. [14]

CCI study

Competition in the Indian pharmaceutical Industry

The study has issues concerning working of pharmaceutical sector both from horizontal and vertical point of view.

The study highlighted that the pharmaceutical markets in India are growing at an exponential rate. However, price competition among retailers can hardly be witnessed.

The drug promotion matrix reveals that there are various unfair trade practices prevailing in the industry. In fact, authoritative studies, including those by the EU competition commission have noted that pharmaceutical companies spend more on promotion and advertising and less on research and development.

There is evidence of inefficient allocation of resources in the distribution of pharmaceutical products as studies available indicate that the profitability margins in the distribution chain is quite high and specially in non-DPCO drugs and non-scheduled drugs in the pharmaceutical industry in India. This has implications on competition in the sector and unfair enrichment through wealth transfers.

Act: we have for the of pharmaceutical industry is Indian Patent Act. This act controls the companies in regulating their projects and helps in regulating competitive market. [15]

Competition in the Indian cement industry

Ernst & Young’s report on the cement industry in India states, “Though the demand growth remained subdued, the cement manufacturers have observed supply discipline involving curtailment of production by companies in order to narrow the demand-supply gap. The self-discipline imposed by the cement manufacturers is yet to stand the test of time” [16] .

Indian Brand Equity Foundation’s (IBEF) report on cement industry in India states, “The Indian cement market is oligopolistic in nature, characterised by tacit collusion, where large players partially control supply for better price discipline” [17] .

Competition in Telecommunications

The study on “Competition Policy in Telecommunications in India” was commissioned to Indian Institute of Management, Bangalore.

The overall objective of the study was to assess the competition policy in telecommunications in India. The study shows that there is increasing competition in telecommunications in India. The degree of competition varies across segments, typically being low in fixed services as compared to mobile telephone. Study also recommend that the competition authority should aim its competition advocacy efforts towards inculcating a competition culture among the various stakeholders in the telecommunications sector including DOT and the ministry of communications and information technology and in the society in general. [18]

Google Case Study

Antitrust laws across the world have launched a big antitrust investigations against Google.

Firstly Anti Trust laws should prove that Google is Monopoly or not and then we have to see weather it is misusing its dominating position in the market.


Source : http://img.labnol.org/di/google_market_share.png

Figure 3 shows the Google Market shae Map across the World.

The colour red indicates that market share of Google is higher than 90% where as Google has less than 50% market share in countries that are highlighted in grey.


Source : http://www.netmarketshare.com/google-market-share

Figure 4 shows the market share of Google search engine. It is 84% which clearly indicates its monopoly and dominant power.

Cases filed on Google for Abusing Anti Trust:

In November 2010, the European Commission announced an investigation into claims that Google has abused a dominant position in online search and search advertising.

The U.S.Federal Trade Commission recently launched its own investigation, following on a similar investigation by the State Attorney General in Texas.

Argentina also is investigating Google on competition grounds, and two South Korean Search firms have urged antitrust authorities there to launch their own investigation.

Claim against Google:

A common claim in several of these investigations is that Google forecloses competition by manipulating search results, both organic and paid results–on its dominant search engine to afford preferential placement to its own services and depress the rankings of competitors.

CCI Analysis

Has Google abused its dominance power in the Market?

Manipulation in search engine results:- Google manipulated its search results-both organic and paid results-on its search engine to afford preferential placement to its own service & lower the ranking of competitors.

These competitors includes “vertical” search services and specialized search engine that let users search in specific area such as Travel, shopping, maps, video.

Targeting specific rivals:-The another allegation against Google is that it unfairly targets websites owned and controlled by its major rivals especially Microsoft, and website acquired by Microsoft see a marked drop in their rankings.

for e.g. Bing Maps, Microsoft Online Services, Microsoft Office Live.

Here in the figure 5 we can see that Bing maps are not there in the first 10 results displayed.

Figure 5

Source 3 : url: https://www.google.co.in/search?q=maps&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a.

Denial of access to content: – Google denied, access of content owned by them to its competitors which result in decreasing competitor’s efficiency.

After Google acquired You Tube, they took steps to make it difficult for competing search engine such as Bing, Yahoo, Rediff to access You Tube content.

Unauthorized use of scrap content:-Google also has a history of scraping content, such as user reviews, from other websites and displaying that content without authorization on its own pages, such as Google Places, Google Hotpot and Google Product Search page.

For example: Google has scraped content directly from yelp and Trip Advisor for its Places pages. [19]

Blocking advertising platform interoperability:- Google has made advertising platform interoperability difficult, increasing the costs of an advertiser, which has the effect of denying competitors market access which is in violation of section 4(2)(c) of the act.

Figure 6

Source :

Google Inc. Financial Tables at:- http://investor.google.com/Financial/tables.html

Figure 6 shows Google’s revenue with respect to its competitors.

Penalties till date

Penalties: – On 31 January 2012 Google was ordered to pay damages in France for abuse of dominance in the API(application program interface)and ordered Google to pay damages, amounting to Euro 500,000, to its French competitor BottinCartographes (Bottin). In essence, the CTP held that Google abused its dominant position insofar as it offered its geographic search engine “Google Maps” for free (predatory pricing) with the goal to exclude competition from the market and, ultimately, to further exploit its dominant position in the commercialization of targeted advertising. [20]




Brief Introduction on INTEL and AMD



It is the no 1 semiconductor industry

Intel’s main competitor,2nd in the industry

Based in Santa Clara, CA

Based in Sunnyvale, CA

100,000 employees

14,757 employees

Revenue 2007: 38 Billion

Revenue 2007: 6 Billion

2007 Mercury Research: ~83% market share

2007 Mercury Research: ~15% market share


date taken on :28/8/12

We can clearly see from the table that Intel is a Monopoly and has dominant power.

Cases filed on INTEL for Abusing Anti Trust:

AMD launched the lawsuit against its rival Intel, the world’s leading microprocessor manufacturer.

AMD has claimed that “Intel engaged in unfair competition by offering rebates to Japanese PC manufacturers who agreed to eliminate or limit purchases of microprocessors made by AMD or a smaller manufacturer, Transmeta”. [21]

The complaint was filed in the U.S. District Court in Delaware in June 2005. The court date, originally scheduled for April 2009, was pushed back to February 2010. One delay was due to the Korea Fair Trade Commission issuing Intel a fine of US$25.4 million.

Some of the manufacturers involved in the case were Dell, HP, Gateway, Acer, Fujitsu, Sony, Toshiba, and Hitachi. [22]

On December 16, 2009, the Federal Trade Commission filed a complaint against Intel alleging that its practices of issuing loyalty discounts in the microprocessor and graphic processor markets violated the antitrust laws. [23]

In February 2009 it was reported that Intel had spent at least US$116 million to date on legal representation on the antitrust suit. This was inferred from a US$50 million lawsuit filed by Intel against one of its insurers; the lawsuit disclosed that Intel had already exhausted US$66 million in coverage from two other insurers while fighting the antitrust lawsuit [24] .

The Commission’s anticompetitive theory is that Intel’s loyalty discounts provide original equipment manufacturers (“OEMs”) with an incentive to purchase almost all of their microprocessor and graphics processor units (“CPUs”, “GPUs”) from Intel. Accordingly, Intel’s rivals lose sales, and are unable to achieve minimum efficient scale to compete effectively with Intel. After these rivals – chief among them AMD – are excluded, Intel is free to raise prices to recoup profits lost by the original discounts. In this framework, these discounts act as de facto “exclusive dealing” arrangements, excluding „locked-in‟ OEMs from purchasing their requirements from AMD or other CPU/GPU manufacturers. [25]

International antitrust authorities in the European Union, South Korea, Japan, as well as American counterparts at the Federal Trade Commission and the New York State Attorney General, have argued that these discount distribution contracts operate like exclusive dealing contracts, depriving rivals of the opportunity to compete for scale. The most recent complaint against Intel also alleges that Intel’s loyalty discounts constitute “unfair methods of competition” within the meaning of Section 5 of the Federal Trade Commission Act. [26]

Japan Case: illegal tactics by offering money to 5 Japanese companies (NEC,Toahiba,Fujitsu,Sony, and Hitachi)

EU Case: AMD alleges that Intel paid German retailers to sell Intel PC’s only

US Case: Making exclusive deals with Dell, Sony, Toshiba, Gateway and Hitachi that included cash payments, subsidies, discriminatory pricing to exclude AMD

E:MBA study workMEProjectintel graphs.png

Source :

E:MBA study workMEProjectintel1.png

Anti trust law: Standard oil

Standard Oil Company was founded by John D. Rockefeller in Ohio in 1870, and, in a decade, it had attained control of almost of all the oil refineries in the U.S. This was when major of the petroleum refining industry was still highly decentralized, with more than 250 competitors in the U.S.Therefore company almost immediately started using a variety of techniques to acquire or destroy competitors and thereby dominate in the sector. They employed techniques such as:

(1) They Temporarily made the prices of competitors to down fall ,so that they either went out of business or sold out to Standard Oil.

(2) The company stated to purchase the components required to make oil barrels in order to stop competitors from getting their oil to customers.

(3) The company used its influence its large and growing volume of oil shipments to negotiate an alliance with the railroads that gave it secret tax benefits which reduced its shipping costs to a far below level the rates charged to its competitors.

(4) They Secretly started buying up competitors and also officials from those companies spy for providing advance warning of deals being planned by other competitors.

(5) They also indulged in secretly creating new oil-related companies, such as pipeline , that seemed to be independent operators but which gave Standard Oil hidden tax benefits.

(6) They dispatched thugs who used threats and physical violence to break up the operations of competitors who could not otherwise be persuaded.

The result of all these actions the company in 1873 achieved about 80 percent of the refining capacity in Cleveland, which was roughly one third of the U.S. total. In that year the stock market got up crash which triggered a recession that lasted for six years, and Standard Oil quickly took advantage of the situation to take up refineries in Pennsylvania’s oil region, Pittsburgh, Philadelphia and New York, and by the year 1878 Rockefeller had attained control of nearly 90 percent of the oil refined in the U.S., and shortly the company had gained control of most of the oil marketing facilities in the U.S.

Government Interference

All the illegal function of the standard oil company came to an end in 1909, as when the US Department of Justice sued against it under the federal anti-trust law, the Sherman Antitrust Act of 1890, for sustaining a monopoly and restraining interstate commerce .

The lawsuit argued that Standard’s monopolistic practices had taken place over the preceding four years, and this had caused a various impacts on other oil companies which was existing the market on those period. . In almost in every section of the country that company has been found to enjoy some unfair advantages the shipping points used were relatively low which made other competitors to move out of markets over its competitors, and some of these discriminations affect enormous areas.

The government identified four illegal patterns:

Secret and semi-secret railroad rates;

The discriminations in the open arrangement of rates;

Discriminations in classification and rules of shipment;

Discriminations in the treatment of private tank cars.


The case came to an end in the year 1911 with the decision of the Supreme Court of the United States in giving a climax, for that Standard Oil companys illegal monopoly which was brought under under the Sherman Antitrust Act.. The judgement was that, the company   split up into 34 companies. Two of thesecompanies which were formed eventually became Exxon, and Socony  and both companies grew significantly .Currently they holding more than 50% share in in the oil market




Monopoly dominance


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