I have a question about what a monopoly is allowed to do and when.
Assume I am CEO of SuperWidgets, Inc. SuperWidgets has been in business many years, and is the clear leader in the widget industry. It also charges a premium price for its products.
There is a new competitor, Joe’s Widgets. Joe’s Widgets is the upstart, and through better technology or management, is able to produce a better or comparable product at a lower price. Free market being what it is, Joe’s should take off.
But I know that Joe and his management team have taken on a lot of corporate and personal debt in founding Joe’s Widgets. So I buy out my competitor, and close down Joe’s and lay off all the widget makers.
The question: Ethics, aside, have I done anything illegal? This is obviously anticompetitive, but it’s also a free-market business transaction. Does the answer change if SuperWidgets has a 80% market share versus a 40% share?
Thanks.
The answer gets really complex.
Boiled down, it’s based on the antitrust prosecutors’ reading of your intent. If by offering a quality product or service at a reasonable price, you have driven almost all your competitors out of business, you have a “natural monopoly” (the term is also used of those things where a company’s investment in infrastructure leads them to control the market in a particular place – a railroad or an electric utility are exmples). If, on the other hand, you’re using your high capitalization and large market share to, first, drive competitors out, and then milk the market for your monopoly product or service to the detriment of the consumer, then they take an interest. There are many ramifications modifying this, however, so don’t take it as anything more than a rough-cut summary.
(As a joke post, I’d thought of saying that Parker Brothers still holds a copyright on Monopoly, and is not subject to anti-trust law about it… ;))
Ah. But assume my “high capitalization and large market share” are a “natural” result of offering a “quality product…at a reasonable price”. I know that there’s no one-paragraph summaries of anti-trust in America today. Is there competitive behavior that’s always in or alwoays out? Are there clear dividing lines between what’s ok for Joe’s Widgets and what’s ok for SuperWidgets?
I don’t know if that clarifies my original question or muddies the waters farther.