Question

As a leading business economist in the country, you were requested to present a detailed research report during a panel discussion at the textile industry Imbizo suggested in the article on how anti-competitive industry practices presents themselves in the sector. Present your report in assignment format. In your report, apply your knowledge of market structures and trade to discuss some of the industry practices and how they could be restricting growth of the textile sector. [15 marks]

Answer 1

The FTC takes action to stop and prevent unfair business practices that are likely to reduce competition and lead to higher prices, reduced quality or levels of service, or less innovation. Anticompetitive practices include activities like price fixing, group boycotts, and exclusionary exclusive dealing contracts or trade association rules, and are generally grouped into two types:

• agreements between competitors, also referred to as horizontal conduct
• monopolization, also referred to as single firm conduct

The FTC generally pursues anticompetitive conduct as violations of Section 5 of the Federal Trade Commission Act, which bans “unfair methods of competition” and “unfair or deceptive acts or practices.”

It is illegal for businesses to act together in ways that can limit competition, lead to higher prices, or hinder other businesses from entering the market. The FTC challenges unreasonable horizontal restraints of trade. Such agreements may be considered unreasonable when competitors interact to such a degree that they are no longer acting independently, or when collaborating gives competitors the ability to wield market power together. Certain acts are considered so harmful to competition that they are almost always illegal. These include arrangements to fix prices, divide markets, or rig bids.

It is unlawful for a company to monopolize or attempt to monopolize trade, meaning a firm with market power cannot act to maintain or acquire a dominant position by excluding competitors or preventing new entry. It is important to note that it is not illegal for a company to have a monopoly, to charge “high prices,” or to try to achieve a monopoly position by aggressive methods. A company violates the law only if it tries to maintain or acquire a monopoly through unreasonable methods.

The FTC provides guidance concerning proposed conduct in the form of advisory opinions. The process starts with a request for advice from the party proposing the conduct. Many advisory opinions are rendered by Bureau of Competition staff, and often involve issues in the health care field. Commission advisory opinions are voted on by the Commission and are intended to address substantial or novel questions of fact or law, or subjects of significant interest.