These competitive market laws include anti-trust, restraint of trade, price fixing and unfair competition…which is a lot of lawyer talk!
So as I am not an expert on law, I have some great examples to help me explain what these all mean…
ANTI-TRUST
While Milton Friedman (a Nobel Prize winning economist) might think that anti-trust laws do more harm than good, it is not to the agreement of the U.S. government. Anti-trust laws were established in order to promote and protect competition (Law Offices of William Markham).
The below brochure from the FTC gives a great history and explanation of Anti-Trust laws:
So basically, anti-trust laws protect the open/free market based upon two interests - Public Interest and Economic Interest. By ensuring that prices never get too low (or to high), the anti-trust laws help stabilize the economy.
According to the FTC, since the Sherman Act is a criminal law,
punishment can be severe, to include penalties of up to $100 million for a
corporation and $1 million for an individual, along with up to 10 years in
prison (Federal Trade Commission).
RESTRAINT OF TRADE
Section one of the Sherman Act provides that "[e]very
contract, combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce among the several states, or with foreign
nations is hereby declared to be illegal" (Legal Dictionary). Going further,
the Supreme Court rules that this only applies to unreasonable restraint of
trade, also known as the Rule of Reason, as determined in Standard Oil Co. of
New Jersey vs U.S. in which Standard Oli Co. essentially bought all oil refining
companies and was turning into a monopoly. The Court identified three such consequences: higher prices, reduced
output, and reduced quality (Wikipedia - Standard Oil Company of New Jersey vs U.S.).
In 2012, the U.S. Department of Justice hit Apple with an
anti-trust lawsuit for the conspiracy of price fixing e-book sales (Bosker, 2012). The claim
is that Apple was telling the five largest publishers that it would charge more
per e-book with the launch of its ipad than the e-books had been selling for
previously on other e-readers like Amazon’s Kindle, with Apple getting 30% of
the sales (Bosker, 2012). This meant that as a consumer, you were not able to get cheaper
prices for your ipad e-books. In this case, the Department of Justice is
defending the American people.
Here are some news clips describing it further:
Shorter version – 2 minutes
Longer version – 5 minutes
UNFAIR
COMPETITION
...is pretty much just what it sounds like. Unfair competition is compromised of torts
that cause an economic injury to a business through a deceptive or wrongful
business practice (Cornell Law). The first being a tort that is meant to
confuse consumers as to the source of the product, and the second being all
other forms of unfair trade practices (Cornell Law). Similarly to what we
learned about last week, unfair
competition can include trademark infringement and misappropriation. However,
unfair competition is separate from ant-trust or competition laws because it is not just about monopolies, but rather this is based upon individual cases, the action,
and the facts.
It is important for public relations professionals to understand these laws as their clients may be involved in one of these industries and/or violate some laws.
But, what about maneuvering markets??
And the plot thickens...
Maneuvering markets is not illegal, yet it seems like it should be…the Feds are
looking into it. But in the mean time, this is precisely what Goldman Sachs
does with its aluminum. In order to make the market more desirable, the corporation
has a constant flux of aluminum coming and going from one of their warehouses
to another of their warehouses down the street. This is just enough movement to
keep the aluminum difficult to track, making the prices go up.
Here
is an excerpt from New York Times article ‘A Shuffle of Aluminum, but to Banks,
Pure Gold’
“Before Goldman bought Metro
International three years ago, warehouse customers used to wait an average of
six weeks for their purchases to be located, retrieved by forklift and
delivered to factories. But now that Goldman owns the company, the wait has
grown more than tenfold — to more than 16 months, according to industry records.
Longer waits might be written off as
an aggravation, but they also make aluminum more expensive nearly everywhere in
the country because of the arcane formula used to determine the cost of the
metal on the spot market. The delays are so acute that Coca-Cola and many other
manufacturers avoid buying aluminum stored here. Nonetheless, they still pay
the higher price.” (Kocieniewski, 2013)
What
do you think of maneuvering markets? Does it fall under the competition laws
or should it be protected? As a consumer, do you feel that you are being duped?
References
Bosker, Bianca (2012). “Apple's Antitrust Lawsuit Might
Be A Big Deal For You -- But Not For Apple” Retrieved from http://www.huffingtonpost.com/2012/04/11/apple-antitrust-lawsuit_n_1418764.html
Cornell
University Law School: Unfair Competition. Retrieved from
http://www.law.cornell.edu/wex/unfair_competition%20
Federal
Trade Commission Guide to Antitrust Laws. Retrieved from http://www.ftc.gov/bc/antitrust/antitrust_laws.shtm
Federal
Trade Commission Fact Sheet – Antitrust Laws: A Brief History. Retrieved from http://www.ftc.gov/bcp/edu/microsites/youarehere/pages/pdf/FTC-Competition_Antitrust-Laws.pdf
Kocieniewski, David (2013). A Shuffle of
Aluminum, but to Banks, Pure Gold. Retrieved from http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?_r=1&
Legal
Dictionary: Restraint of Trade. Retrieved from http://legal-dictionary.thefreedictionary.com/Price+Fixing%20
Markham,
William (2006). “Why Antitrust Laws Matter” Retrieved from http://www.markhamlawfirm.com/law-articles/why-antitrust-laws-matter/
Wikipedia: Standard
Oil Company of New Jersey vs. United States. Retrieved from http://en.wikipedia.org/wiki/Standard_Oil_Company_of_New_Jersey_v._United_States
The
United States Department of Justice: Antitrust Division. Retrieved from http://www.justice.gov/atr/about/antitrust-laws.html
anti-trust laws and price fixing can be such a difficult thing to manage. I didn't even realize it until I was at my internship and we had to wait to make announcements and launch websites because it could be seen as price fixing otherwise. In that instance, it was a promotion and nothing underhanded was going on but it still would have been illegal if everything wasn't launched in the right order. I think unfair competition laws are needed because otherwise there would be a lot of deception going on by corporations. What a company writes and advertises is subject to laws, so their business practices should also be.
ReplyDeleteKatie, thanks for your insights on price fixing from your internship! That is great that you have some acutal hands on experience for this topic, as I am sure it really helps to put these laws into a real life perspective. It will give you a great benefit when you go to your first job in the field.
DeleteSarah --
ReplyDeleteThanks for posting such a thorough list of resources that help explain these wide-ranging laws. I think these will be useful for people to come back to when they have a question on this topic. I especially like your YourTube videos that help to explain the issue of price-fixing. As Katie points out, it is fairly easy to get in trouble if you aren't careful about how you deal with suppliers and your competitors (just attending a closed-door session at an industry conference can get you into trouble if later the big players all end up setting very similar prices and policies)..
It is important to note that most of the unfair competition laws have civil penalties and are governed mainly by state law; whereas anti-trust laws are Federal and, as your materials point out, can have fairly severe criminal penalties. I mention in the narrated PowerPoint presentation on this topic that the paper industry has had several of its executives do jail time for violating these laws.
Pat
Thank you Professor for pointing out that unfair competition falls under state rather than federal. I also would have over looked something as simple as sitting in on a closed-door session that could be considered price fixing if you are not aware of the situation. While I learned a lot about these laws, I still have a long way to go to!
DeleteSarah, this was a great post. Much like yourself I am by no means a law expert. Actually, a lot of the material this class covers is the first time I am learning about it. But your post was very inclusive and the added examples really helped to clarify the differences between anti-trust, price fixing, restraint of trade and unfair competition. I was most shocked by your statement that "Manuevering markets is not illegal..." It seems as though it is a practice that should definitely be deemed illegal and certainly unethical. I am shocked that this is now just being looked into. Also, Professor Whalen's comment helped to clarify that unfair competition laws do have civil penalties and tend to fall under state law compared anti-trust laws which are typically federal. I also agree with Katie, in her comment when she says, "what a company writes and advertises is subject to laws, so their business practices should be also." 100%
ReplyDeleteThis is definitely a tricky subject matter to tackle, and you did a great job!! Thanks Sarah!
Thanks for your comment Kacey! At first I was pretty confused myself and couldn't quite seem to get a feel for the laws, but once I started viewing more of the case studies and examples from the news, it seemed to click. Yes, manuevering markets is a crazy thing -- it almost seems as if the current laws actually proctecting the manuervering market scheme, without meaning to. I think this will definitely be looked at with greater concern from now on.
DeleteGreat post Sarah! This is just another one of those law topics, like almost all of the ones that we've covered where it's never clear cut and it is a tricky situation to sift through. It can really be tough to prove an anti-trust case. There obviously has to be definitive evidence that one organization is trying to monopolize an industry and that can be very tough to prove because if one organization is doing exceedingly well it doesn't mean they are monopolizing the industry. It may just mean that the other organizations need to step their game up. I also found it really interesting that unfair competition laws were mostly under state laws, I always thought they were federal laws like anti-trust laws. Thanks for helping to clear that up Sarah! Great work.
ReplyDeleteJared, great thoughts about how an organization that is doing well isn't necessarily breaking a law to become a monopoly. You're absolutely right! Maybe they are just heads above the rest by sticking to the rules -- which means that the other companies should improve their product/service if they want to have any chance of competing. However, this is a slippery slope, as this can sometimes make those lagging companies turn to price fixing or other tactics to help themselves.
DeleteGreat post Sarah,
ReplyDeleteI think like many in the class I do not have any actual hands on experience with this or many of the other topics we have learned about in this class. The fact of the matter is that there are many ways in which the possible companies we work for can find ways to either do what Apple tried in terms of price fixing to make more money or what other companies attempt to do time and time again by forging with other smaller brands to create a monopoly. Even though as practitioners it is our job to do what is in the best interest of our client and what they have hired us to do in terms of their media management, internal management, organization of promotion interests and so on, it is also our job to make sure it is done in an ethical manner. The fact of the matter though is that these ethical decisions are on us as the practitioners. I recently found out that there is a PRSA ethical code app people can download and it not only shares their code of ethics, but also provides a quiz and additional information for practitioners and students to gage how ethical we are. I think this is something important for all of us to utilize.
Katherine, thanks for your post! It ultimately does come down to who one wants to be as a PR professional. The PRSA Code of Ethics app sounds awesome!
DeleteSarah - thank you so much for clarifying this topic. You presented it in a very conversational, easy to read way that was interesting and informative. Bravo!
ReplyDeleteI think these laws are some of the most important in business and commerce. Just like the example the brochure gives about a monopoly on jeans, imagine if there was a monopoly on bananas? Or toothpaste? I had thought about the impact on price before, but never about the impact on quality. Monopolies are scary stuff.
Also - how sketchy is Apple? You would think that a corporation like that would have a massive, educated, no-joke legal group who would advise against their attempt at price fixing, but they very clearly tried to get away with it anyway.
I started to think about other monopolies, including ones that are mostly in the public's perception. For athletic clothing, Nike has the market cornered. For smartphones and computers, it's Apple. Even just for internet searching, it's Google. Winter coats, North face. While they are not legally a monopoly, their brilliant advertising - making people feel like they NEED to product, that it's "popular" to have the product, and that no matter the price, people will pay for the product.
Teddy, you are right, the monopolies sometimes are because of the public's perception (as well as sketchy (or brilliant - depending on how you look at it) advertizing. All of the corporations you mention do just that - make it the most popular brand/product and make people think that they just HAVE to have it. Ugg is another one that comes to mind.
DeleteSarah, great post! The graphics were great and the sumo bit made my day. I have an immediate caution, though: stay as far away from Milton Friedman as possible. He would laugh at you as loud as Ayn Rand would for serving the military. The man believed that the entire country -- police, military, teachers, everything -- were there for his enjoyment to make as much profit as possible without any obligation to give back. He's a monopoly man, who would have fit right in with Standard Oil or Teapot Dome. Believe me. Bad dude.
ReplyDeleteBeyond that, though, you did a good job of condensing one of our most content-rich modules. Congratulations. Not easy to do.
And I knew you really got it at the point when you wrote, "And the plot thickens…."
Yes, its a minefield for PR professionals because we are promoting, persuading, sometimes twisting arms and mending fences -- but we always need to know these complex rules governing really complex relationships.
What is not getting addressed in all of this -- not in our readings, not in the media, and not in the general consciousness of the country -- is how much some of the international "free trade" deals are doing on a global scale what the Roosevelt and the trust busters sought to kill a hundred some years ago on the national scale. Except now we have no trust busters on an international scale to break up the corporate cartels now being erected in the Trans Pacific Partnership. These are trusts that not even our anti-trust laws can touch. Written by our US Trade Representative, trade diplomats from the 12 signatory countries and a council of more than 600 corporate advisers, this is violations of our own Anti-trust, Restraint of Trade, Price Fixing, and Unfair Competition laws being written into the new trade law with NO public scrutiny, debate or democratic representation.
I think this is going to be the issue that splits things right open this next year, and PR people -- we -- are going to be answering questions about unfair trade practices and corporate malfeasance in a number of different contexts. It will be interesting where we place our bets and where the chips fall.
Thanks for your response, Darrin. You make some great points that I hadn't thought about regarding free trade.
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