Real Estate Term:Antitrust
Antitrust or competition laws are laws which prohibit anti-competitive or unfair business practices. The term "antitrust" derives from the U.S. law which was originally formulated to combat "business trusts", now more commonly known as cartels.
Arguments in favor of antitrust laws
By introducing antitrust legislation, consumers should benefit from reduced prices, better product diversity, and thus more choice. Furthermore, as the market power of large cartels is reduced, they are forced to pay more attention to the needs and wishes of individual customers.
Large companies with huge cash reserves and large lines of credit can stifle competition by engaging in predatory pricing; that is, by selling their products and services at a loss for a time, in order to force their smaller competitors out of business. With no competition, they are then free to consolidate control of the industry and charge whatever prices they wish. At this point, there is also little motivation for investing in further technological research, since there are no competitors left to gain an advantage over.
High barriers to entry such as large upfront investment, notably named sunk costs, requirements in infrastructure and exclusive agreements with distributors, customers, and wholesalers ensure that it will be difficult for any new competitors to enter the market, and that if any do, the trust will have ample advance warning and time in which to either buy the competitor out, or engage in its own research and return to predatory pricing long enough to force the competitor out of business.
Criticisms of antitrust
Critics of anti-trust laws claim that there are two kinds of monopolies: Coercive monopolies, or statutory monopolies, (generally created or sustained by the law) and Natural monopolies (arising out free market conditions); the latter which are seen as economically beneficial.
Thomas Woods asserts that the industries most frequently accused of holding a coercive monopoly position in the late nineteenth century were neither restricting output nor raising prices.
The Results of "Predatory pricing": Commodity Prices from 1880-1890
Steel ?58%
Zinc ?20%
Sugar ?22%
During the 1880s output of monopolistic industries grew seven times faster than the overall economy, while prices in these industries were generally falling—even faster than the 7% rate of decline that occurred in the economy as a whole. [1]
Free market economist Milton Friedman states that he initially agreed with the underlying principles of antitrust laws (breaking up monopolies and oligopolies and promoting more competition), but came to the conclusion that they do more harm than good and that therefore they should not exist. [2]
Critics also argue that the empirical evidence shows that "predatory pricing" does not work in practice, and is better defeated by a truly free market than by anti-trust laws (see Criticism of the theory of predatory pricing).
Thomas Sowell argues that even if a superior business drives out a competitor, it doesn't follow that competition has ended:
In short, the financial demise of a competitor is not the same as getting rid of competition. The courts have long paid lip service to the distinction that economists make between competition — a set of economic conditions — and existing competitors, though it is hard to see how much difference that has made in judicial decisions. Too often, it seems, if you have hurt competitors, then you have hurt competition, as far as the judges are concerned.[3]
Alan Greenspan argues that the very existence of antitrust laws discourages businessmen from being productive for society, out of fear that their business actions will be determined illegal and dismantled by government. In his essay entitled Antitrust, he says: "No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible." [4]
| 
