Antitrust is predominantly an American term referring to laws regulating the abuse of monopoly power.
Monopolies have various disadvantages for society and consumers. In particular:
- Higher prices
- Less choice
- Less incentives to cut costs and develop new products
- Monopsony buying power and employment of labour
Antitrust laws came into effect in the nineteenth century due to the market power exercised by powerful rail companies.
Recent examples of antitrust laws include the investigation of Microsoft. This shows that antitrust laws are not without controversy. Originally, the courts argued Microsoft should be broken up. But, on appeal, Microsoft was allowed to continue as one company.
It is argued that monopolies can have various benefits and therefore breaking them up may be undesirable. In particular, monopolies can:
- Benefit from economies of scale.
- Spend supernormal profit on research and development.
- Firms may become monopolies because they are successful, e.g. Google and Apple.
Antitrust laws include
- Breaking up a monopoly
- Fining firms who collude and form a cartel
- Fines or imprisonment for directors who get involved in illegal activities such as collusion and cartels.