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Principles of Economics

11.2 Regulating Anticompetitive Behavior

3 min readLast Updated on June 24, 2024

Anticompetitive behavior can harm consumers and stifle innovation. Companies use tactics like price fixing, market allocation, and predatory pricing to gain unfair advantages. These practices limit competition and often lead to higher prices and fewer choices for consumers.

Antitrust regulations aim to prevent these harmful practices and maintain fair competition. Laws like the Sherman Act and agencies like the FTC work to identify and stop anticompetitive behavior. They also regulate mergers to prevent excessive market concentration.

Anticompetitive Behavior and Antitrust Regulation

Common restrictive business practices

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  • Horizontal restraints
    • Involve agreements between competitors at the same level of the supply chain
    • Price fixing occurs when competitors agree to charge the same or similar prices for their products or services (gasoline retailers)
    • Market allocation involves competitors agreeing to divide up markets geographically or by customer type to reduce competition (pharmaceutical companies)
    • Bid rigging happens when competitors coordinate their bids to manipulate the outcome of a competitive bidding process (construction contracts)
  • Vertical restraints
    • Consist of agreements between firms at different levels of the supply chain, such as manufacturers and retailers
    • Resale price maintenance involves manufacturers setting a minimum or maximum price at which retailers can sell their products (electronics brands)
    • Exclusive dealing requires a retailer to only sell a manufacturer's products and not those of competitors (beverage distribution)
    • Territorial restrictions limit the geographic areas where retailers can sell a manufacturer's products (franchises)

Tying vs bundling vs predatory pricing

  • Tying sales
    • Involve selling one product (the tying product) on the condition that the buyer also purchases another product (the tied product)
    • Can be used to leverage market power in one market to gain an advantage in another market (Microsoft's bundling of Internet Explorer with Windows)
    • Example: A printer manufacturer requiring customers to buy its branded ink cartridges to use with the printer
  • Bundling
    • Offers two or more products together as a package, often at a lower price than if purchased separately
    • Pure bundling makes products only available as a bundle and cannot be purchased individually (cable TV packages)
    • Mixed bundling makes products available both individually and as a bundle, with the bundle offered at a discount (software suites)
  • Predatory pricing
    • Involves setting prices below cost to drive competitors out of the market
    • The predatory firm incurs short-term losses with the goal of eliminating competition and then raising prices to recoup losses and earn higher profits
    • Requires significant market power and financial resources to sustain losses in the short run (Amazon's pricing strategy in certain markets)

Application of antitrust concepts

  • Market power
    • Refers to the ability of a firm to profitably raise prices above competitive levels
    • Factors to consider include market share, barriers to entry, product differentiation, and buyer power (Google's dominance in online search)
  • Rule of reason
    • A legal approach that weighs the pro-competitive benefits of a business practice against its anticompetitive effects
    • Considers factors such as market power, intent, and the overall impact on competition and consumer welfare (exclusive contracts in the sports industry)
  • Per se illegality
    • Applies to certain practices, such as price fixing and market allocation, which are considered inherently anticompetitive and are illegal without further analysis
    • No need to demonstrate actual anticompetitive effects or market power (price fixing in the airline industry)
  • Relevant market
    • Defines the market in which the alleged anticompetitive behavior takes place
    • Determined in terms of both product and geographic dimensions
    • Helps determine the extent of a firm's market power and the potential impact of its actions on competition (the market for smartphone operating systems)

Antitrust Regulation and Enforcement

Term 1 of 23

Antitrust Regulation
See definition

Antitrust regulation refers to the laws and policies designed to promote and maintain competition in the marketplace by preventing monopolistic practices and other anticompetitive behaviors. It aims to ensure a level playing field for businesses and protect consumer welfare.

Key Terms to Review (23)

Term 1 of 23

Antitrust Regulation
See definition

Antitrust regulation refers to the laws and policies designed to promote and maintain competition in the marketplace by preventing monopolistic practices and other anticompetitive behaviors. It aims to ensure a level playing field for businesses and protect consumer welfare.

© 2025 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.

Term 1 of 23

Antitrust Regulation
See definition

Antitrust regulation refers to the laws and policies designed to promote and maintain competition in the marketplace by preventing monopolistic practices and other anticompetitive behaviors. It aims to ensure a level playing field for businesses and protect consumer welfare.



© 2025 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.

© 2025 Fiveable Inc. All rights reserved.
AP® and SAT® are trademarks registered by the College Board, which is not affiliated with, and does not endorse this website.