Antitrust Practices and Market Power
Kimberly L. Luce gimom@verizon.net Introduction
The company I have chosen is Comcast. They offer cable, internet, and video-on-demand. The Federal government decided to investigate cable companies for trying to manipulate the consumer away from services provided by other competitors like Netflix and Hulu.
Pecuniary Costs
Comcast was found to be in violation of the Hart-Scott-Rodino Antitrust Improvement Act (HSR Act) in connection with his acquisitions of Comcast stock between 2007 and 2009 (FTC, 2011). Brian L. Roberts, the Chief Executive Officer of Comcast Corporation was fined $500,000.00 for not adhering to the regulations set forth by HSR Act.
Good and the Bad
The Comcast antitrust investigation has clearly represented an oligopoly. Comcast is one of three major public utility services offered to the consumer. The top five are considered the larger of the providers/competitors in this arena which are Comcast, DirecTV, Dish Network, Time Warner Cable, and Cox Communications. This would be a good example of oligopoly in which an industry
Comcast is said to be the most hated corporation in America (Igonzalez, 2012). Swapping and clustering is what Comcast was trying to do in the Philadelphia area in order to wipe out any competitors. This was a violation of the Sherman Act. Keeping competitors at bay and creating barriers of entry into the market caused much stress on the consumer. Comcast was able to determine the price of the product at a higher level, making them a “price maker”. One barrier of entry is the economies of scale. They were able to reduce their average total cost in production while it expanded its output.
When a corporation like Comcast has market power, they can regulate it according to their own terms. The products that Comcast produce/sells are almost identical to its competitors, therefore, the cable companies that are competing for market share are interdependent as a result of market forces. Let’s say Comcast the demand for services are 100,000, Comcast would service 50,000 and its competitor the other 50,000. The prices of the two services being sold are very similar. If Comcast begins selling their service at a lower price, it will end up getting a greater market share. This will force it’s competitor to lower their price. The consumer is always looking for the better deal. The oligopoly can charge above the equilibrium price, which in turn puts pressure on the market of competitors to come up with a more advanced and sought after product, keeping the market in a state of constant innovation.
The Benefit Due to the small number of companies that actually control a bigger portion of a cable industry, it is not likely that one will make price increases. They are now at risk because if the other companies do not follow suite, the company that raised their prices will lose its share in the market because the consumer will always turn to the competitors that have the exact same product but at a lower price. These competitors will benefit in the long run in their profit margin due to the consumers increase in demand. The consumer now has stability of their expenditures. Conclusion Antitrust laws were created to protect the people, the consumer. Competition in the marketplace is good but needs to be controlled. This will ensure prosperity for all Americans. No agreements can be made among the competitors to fix their prices. They cannot cheat or use unfair practices of competition to include being deceptive. Fairness in the market is always being looked and investigated. The Clayton Act has put a stop to different types of merging of companies that would hinder competition. This will ensure that the consumer can benefit from the competition. To have a successful economy we all must find that place of equilibrium.