Monopoly and Competitive Market

[Virtual Presenter] Good morning everyone. Today we will be discussing the topic of monopoly and competitive markets the causes of monopoly and the antitrust laws in the U-S to regulate monopolistic practices leading to increasing prices of medicine. Let us start with a brief overview of what we will be covering..

[Audio] A monopoly is when one entity has exclusive control over the production and sales of a product with no acceptable alternatives. They are the determiners of the cost of their goods and services and can set the cost at their own choosing. Monopoly can happen when entry barriers are in place making it difficult for other producers to offer equivalent products..

[Audio] Barriers to entry are common in a Monopoly market making it hard for new companies to enter the industry. Such barriers can be having access to a unique resource government restrictions or regulations or control over a complex production process. These help established companies retain their market share allowing them to remain dominant in the industry..

[Audio] With many buyers and sellers trading the same products competition in the market is fierce. As firms are able to enter and exit the market freely it helps keep the supply and demand in equilibrium. When pricing their products and creating strategies all firms must take into account the actions of their competitors..

[Audio] Firms that compete with each other lack the power to set prices meaning they instead must adjust their prices in response to those of the market. Generally these firms are smaller than firms that operate in a monopolistic market which grants them less control of the market itself. As a result they are at risk when it comes to prices since they have limited control in adjusting their prices to a competitive rate..

[Audio] Monopoly and competitive markets" is an important topic; it is essential to recognize and understand the differences between them. In this slide we will focus on the case of government-protected monopolies. This may include regulations and licensing in certain industries subsidies and grants exclusive contracts and barriers to entry. Understanding the concept of a government-protected monopoly is essential to capitalizing on all the advantages of a free market economy..

[Audio] In the US drug companies enjoy a patent monopoly for essential medicines allowing them to be the sole manufacturer for up to two decades. This prevents other generic medicines from entering the market and keeps drug prices high..

[Audio] As monopolies have more power to increase prices the costs of medications can increase and make it more difficult for average people to afford them. As such the cost of healthcare can grow substantially if an industry is monopolized by a few players leading to larger profits for the companies but greater financial burden on the consumers..

[Audio] This slide highlights striking variations in per capita retail drug spending around the world. In 2014 the United States spent the most at 1 200 U-S dollars followed by Japan Canada and Germany at 1 112 741 and 457 U-S dollars respectively. All these figures were calculated using standard P-P-P weights. Data included both prescription and over-the-counter drugs and was based off the OECD's pharmaceutical spending report from 2013..

[Audio] The United States' antitrust law has been in place for well over a century to ensure the fairness of competition in the market. The Sherman Act the Federal Trade Commission Act and the Clayton Act serve as its three major pillars. These laws are designed to deter monopolistic practices and promote fair competition in the market..

[Audio] In 1890 the United States Congress passed the Sherman Act a piece of legislation that aims to address the occurrence of monopolization by prohibiting certain conduct defining certain activities as anti-competitive and extending provisions to the District of Columbia and U S territories. As such the Sherman Act has become a critical instrument in upholding competitive markets and safeguarding consumers..

The Sherman Act (1890). [image] SEC. 2. [15 U.S.C. 21 Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other per- son or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceedin $100,000,000 if a corporation, or, if any other person, $1,000,006, or by imprisonment not exceeding 10 years, or bv both said punishments. in the discretion of the court..

[Audio] The Federal Trade Commission Act of 1914 created the Federal Trade Commission to protect consumers from anti-competitive business practices. It gave the F-T-C more extensive powers than what the Sherman and Clayton Acts provided. As an independent and bipartisan organization the F-T-C works to maintain competition in the markets allowing consumers to benefit from competitive prices and good quality products..

[Audio] The Clayton Act of 1914 is one of the most important pieces of U-S antitrust legislation. It tackles specific anticompetitive practices that are not explicitly forbidden by the Sherman Act. There are 27 sections in total and among them the most noteworthy are Sections 2 3 7 and 8. Section 2 makes it illegal for price discrimination to be used to reduce competition and create a monopoly. Section 3 takes aim at exclusive dealing agreements and tying arrangements that reduce competition. Section 7 prohibits mergers and acquisitions that would weaken competition or form a monopoly. Finally Section 8 forbids interlocking directorates where the same people sit on the board of directors of competing companies..

[Audio] Antitrust law in the United States is a vital mechanism that maintains competition in the market. According to Section 3 exclusive dealing agreements and tying arrangements are not allowed if they can reduce competition substantially. Exclusive dealing agreements are when a seller makes a buyer purchase from them alone denying the buyer to purchase from other vendors. Meanwhile tying arrangements are when a seller forces the buyer to buy one product once they agree to buy another. This impedes competition because it forces customers to purchase products they don't necessarily need or want. Therefore antitrust law is vital to preserve a level playing field in the market..

[Audio] Accusations have been made that two of the largest tech companies in the world Google and Apple have breached the Clayton and Sherman Acts. These laws are integral in protecting competition and avoiding monopolistic forces dominating the market. Google and Apple's violation of these antitrust laws demonstrate their willingness to exploit their significant market power to gain unfair advantage. It is thus necessary to keep these corporations in check and contain the power they have over the market..

[image]. Sherman Act Section 2: Monopolization Violation Description: - Monopoly Power: Google holds significant market power in various sectors : search engines and online advertising. - Anticompetitive Conduct: requiring smartphone manufacturers to pre-install Google Search and set it as the default search engine effectively excluded competitors and maintained Google's dominance in search..

[Audio] Section 3 of the Clayton Act prohibits exclusive dealing agreements like those made by Google that restrict other companies from being competitive in a given market. If these are disregarded the Act authorizes the courts to put a stop to and forbid such anti-competitive business activities..

[Audio] With the tech industry's constant expansion it is important to comprehend the dissimilarity between a monopoly and a competitive market. The Epic Games v Apple lawsuit offers an adequate example of this. Apple has control over the distribution of applications on iOS devices with the App Store and forces app makers to use its in-app purchase system consequently limiting alternative payment options and maintaining dominance over the app ecosystem. Those who take issue with Apple's procedures allege that such activity is monopolistic. To ensure businesses have the opportunity to create and customers have the freedom to choose it is paramount to keep the market competitive..

[Audio] Section 3 of the Clayton Act deals with the violation of tying arrangements an anti-competitive behavior. Apple's policy of making its App Store contingent on its in-app payment system has limited competition by compelling local developers to use Apple's payment services in order to distribute their apps on iOS devices. This has had the effect of hampering the development of the app market..

[Audio] After analyzing the current antitrust cases involving Google and Apple it is evident that both are in violation of U-S antitrust law. Google has monopolized its search and mobile OS markets and has abused its power through exclusive dealing agreements with manufacturers and network operators. Apple on the other hand has monopolized the App Store and in-app purchases and has imposed tying arrangements which force developers to opt only for Apple's payment system. It is now up to the law to ascertain whether these two companies have acted illegally in the market place or not..