Antitrust Laws: Benefits, Importance, And Effectiveness
Standard economic theory holds that sufficient competition is a vital ingredient for the effective functioning of markets, without which unscrupulous players would be better placed to not only obtain monopoly power, but also impede on allocative efficiency by setting prices in their favor (Updegrove, 2007). In order to prevent this and ensure the maintenance of sufficient competition, governments enact antitrust and competition laws and put in place special institutions to oversee the enforcement of the same (Updegrove, 2007). Antitrust laws, therefore, seek to foster sufficient competition within markets by preventing the emergence of cartels and monopolies. However, in spite of this theoretic economic rationale, there still is a fierce debate about the effectiveness and practicability of antitrust laws.
Benefits of Competition
Competition fosters efficiency because it drives service providers to not only venture, but to also initiate and innovate, so as to respond better to the needs and expectations of customers, and hence maintain market share (Baer, 2013). Service providers, to this end, strive to allocate production resources in a way that minimizes costs while maximizing welfare, since rational consumers would always expect a provider to offer high-quality products at the lowest possible costs. In this way, resources are optimally-allocated both at the firm and industry levels (Baer, 2013).
The second benefit of competition is that it weeds out the slow, the incompetent, and the failures, leaving the innovative, dynamic and the fast-to-respond to run the market (Baer, 2013). This 'economic selection' benefits the economy, in its entirety; to consumers, it ensures that they get access...
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