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Anti-monopoly and anti-cartel laws HURT competition

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libertarian Posted: Thu, Nov 15 2007 4:06 PM
I have read articles opposing legislation of anti-monopoly laws, but I did not have read any articles strictly *against* anti-monopoly law legislation. I support court *enforcement* of cartel agreements. I would explain my reasoning:

In some places, there is only Internet service provider (ISP) to choose from. It is created by government intervention in telephone companies and cable television companies that also provides Internet connection, and also competitive local exchange carriers created by governments. But even in places where there are several ISPs to choose from, the price and Internet connection bandwidth is similar to the monopoly price. At first, it seems to be an unusual high price for competing firms.

Of course, the poor performace is partially caused by the reasons I ascribed above. But the major reason is the anti-cartel laws that prevents them forming cartels. Even if the law temporarily prevents them forming cartels, they do much more harm than good. They prevent new competing ISPs from entering the market.

Oligoarchies only contain 5-10 firms. Competition between them is relatively very bad compared to hundreds of competing firms. There are too few products to select from. Due to the small varities of products, there is not one single product that satisfies all of your criteria, so you must buy sub-optimal products.

Near-perfect competition can only occur when there are hundreds of different forms competing for a homogenous product or service. Due to the mass variety of products, it is very likely that there are a few firms producing products meets all of your criteria. This form of competition also magnifies and motivation innovation incentives. For instance, one firm that is slightly better gets ahead and outcompetes one-hundred other firms.

Also cartel agreements are *much* less likely to be enforced if there are hundreds of competing firms. (Example, the probability that the cartel would be enforced decreases exponentially when the number of firms increases) Due to its strict competition, they cannot take the risk of raising the price. If one group of firms raises the price, is extremely likely that several of the hundreds of other firms would quickly do something creative. And because of the numerous firms, the consumer can easily find another firm that satisfies their criteria. There might be also "hidden" or "dormant" firms that would quickly enter the market once the cartel is formed.

Fact: Cartel agreements certainly raises the prices in an oligopoly, if it is enforced by contracts.

But it does not mention that cartels, even if it is enforced by contracts, are temporary. Cartel agreements produces an incentive for new, competiting firms to enter the market. If this new firm joins the cartel, another new firm would also enter. When 50 new firms had entered, the cartel agreement would be very impossible to enforce. Cartels only occur in oligopolies. So cartels are some form of "loose monopoly".

We strongly like the creation of hundreds of new firms, as the benefits of near-perfect competition from hundreds of competing firms include enhanced innovation, greater variety of selection, near-optimal value vs. quality etc.

Anti-cartel laws restrict the creation of hundreds of new competing firms, which undermines competition and raises prices. Even if the creation of new firms is long, it would be MUCH better than the oligopoly, since there is much better competition.

Going back to ISPs, we would only get reasonable competition if there are hundreds of competing ISPs. To encourage the creation of hundreds of new ISPs, we should repeal the anti-cartel laws. As you see, these anti-cartel laws are actually pro-oligopoly, anti-competition and anti-innovation. Look at webhosting services. There are a gazillion amount of them, and all compete in a very cheap price. Television and electricity are uncompetitive.

The Sherman Antitrust Act was passed in 1890, which was initially intended to break up the innocent Standard Oil company; NOT to protect consumers. Unfortunately, American Progressivism was introduced in the 1890s in the (coincidence?) and was viewed as a "treatment" for the "inherent" "capitalist" faults.

We had proof that repealing anti-cartel laws is not an ideological argument. In my opinion, enforcing collusion by courts creates *more* competition than not enforcing the agreement. These anti-cartel laws are actually a subset of price fixing and price controls enforced by the government. Yet the government price fixes the Federal Reserve and minimum wage. At last, we had proof that ALL anti-trust laws do *much* more *permanent* harm than temporary good!
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Well I definitely agree with you that this anti-monopoly/-oligopoly fixation is harmful as well as stupid, and it is ultimately based on flawed competition models based in older neoclassical economics. What the optimal concentration of firms is, is for the market to decide. I recall someone mentioning that cartel agreements are essentially the same as the firm merging with other firms, in a way. I am not sure where the problem lies.


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Suppose each firm has 0.9 likelihood that it would agree to a cartel contract. If there are 10 firms, then there would be 0.9^10 = 0.35 likelihood that the cartel would be enforced. If there are 60 firms, there would be only 0.9^60 = 0.002 likelihood.
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