Unite States Gypsum Company and Antitrust - Report Example

Unite s Gypsum Company and Antitrust School Management of trade is not a modern concept rather; it is a concept that has been practiced even during ancient times. Today, with the many innovations coming out in the market, competitions are tight. Amidst this strict competition and the desire of every entrepreneur to succeed come the unnecessary practices of business people. Thus, the law seeks to protect free and honest trade, maintaining a high quality service from business people and satisfied consumers. These needs initiated the birth of the antitrust policy which will be discussed in part as we go through the case of the United States gypsum manufacturers. Looking at the antitrust policy, is it indeed protecting the competition or preventing it? The advantages of free competition are dissected in this paper as well. The case of the state against major gypsum board manufacturers and its various officials is an example of a successful antitrust trial case which has convicted the defendants in just nineteen weeks. Successful in the sense that antitrust cases heard after a few years are not unusual and most often, they are dismissed (Baumol & Blinder, 1998). The antitrust policy are programs created to protect small businesses by preventing monopoly in businesses as well as the engagement of big firms to “undesirable practices” (Baumol & Blinder, 1998). This policy started in1892 as an effort of the Supreme Court of Ohio to dissolve the growing monopoly of the Standard Oil Trust, thus, the term antitrust was coined (Baumol & Blinder, 1998). As a fast growing company, Standard Oil and its connected companies somehow have grown to lack confidence in the reliability of their alliance that they needed a policy to control their decisions. The policy primarily aims to foster competition rather than prevent it, which is a good thing as it gives equal opportunities for both big and small entrepreneurs to succeed. The gypsum board manufacturers were found to have violated this policy, killing the competition through interseller price verification. This is the practice of calling competing manufacturers to find out current prices offered to specific customers for them to fix a price on their product. Here, the manufacturers purposed to organize to a pricing scheme to control the market. One of the violations determined in this case was against section 1 of the Sherman Act which forbids all contracts, combinations and conspiracies in restraint of trade as well as the monopoly in interstate and foreign trade (Baumol & Blinder, 1998). There are four elements needed to be established to prove the violation of the said act namely; a conspiracy formed by two or more entities, an unreasonable restraint of trade or commerce by the conspiracy, the interstate nature of the restrained trade or commerce, and general intent (Bell & Laskin, 1999). In this case, there were several manufacturers who were charged, giving the first element a check mark. Restraint of trade was found to be present as there were economic consequences seen like the elimination of competition, possibility of a monopoly, playing with prices, or the blocking of market forces (Bell & Laskin, 1999). With the connivance done among the accused manufacturers with the same product, the interstate nature is met for the case to be plausible. The state of mind in this instance also shows the intent to control the price as the manufacturers allegedly telephoned to verify current prices (St. Olaf College, 1978). In defense, the accused claimed that during the telephone calls, they were just taking advantage of the meeting competition defense stated in section 2 of the Clayton Act as revised by the Robinson-Patman Act (St. Olaf College, 1978). Section 2 prohibits the arrangement to have certain products at a lower price with the agreement that other products will be purchased from the same seller. The amendment on the other hand prohibits sellers to offer similar goods at different prices, giving discounts especially to wholesalers not unless those sold at lower prices are offered in good faith (Baumol & Blinder, 1998). In this case, the defendants could be freed from the allegations however, after a week’s deliberations; the gypsum board manufacturers were indicted. Being one possible reason for companies avoiding discussing prices with their rivals, this case brought a lesson to producers. When they are being accused similarly like the gypsum manufacturers, they claim their cooperation to be tacit. Though it was not proven, it is alleged that there are signals going on among the companies, sending messages through interviews or even advertisements with regards the dictate of prices. This may be observed when one company announces price increase then other companies follow suit. Another way of companies to avoid direct contact with their rivals is the so called predatory pricing where one firm lowers its price intending to destroy its rival and raises it at a considerable high price when the competitor is already out off the market. Such cases bring questions as to the effect of the antitrust policy to free competition in the trading industry. Manufacturers who are protecting their profits seem to be largely affected with this policy. Yet beyond all these, perversion of the antitrust policy is quite possible which brings a debatable issue especially on the part of the entrepreneurs. Such case is done among sellers like that of the instance between Sewell Plastics and Coca Cola Southeastern Container et al. where the former was the producer of plastic soft drink bottles. Considering the price was quite high, Southeast Coca Cola bottlers formed Southeastern Container, a cooperative firm manufacturing their own bottles. As the cooperative grew, it reduced its price which caused Coca Cola’s former producer, Sewell Plastics, to sue pleading to buy the cooperative (Baumol & Blinder). This brings the cry of companies to their protection in the antitrust policy. On the contrary, the antitrust policy shows in this regard its effectiveness with its original aim being attained, that is to protect competition and not the companies. In addition, there are the consumers who also need to be considered. What benefits do they get from this policy? As the antitrust policy aims in preventing the monopoly in businesses, consumers are basically at an advantage because prices are taken cared of. When there is a monopoly in trade, prices can go very high, leaving consumers to bear the pain of the sky-high cost of commodities as this can be dictated by only one company. In addition, there would be a limit in the improvement of products. On the contrary, if there is competition among manufacturers and sellers, prices can adjust in accordance to the quality of the product. The manufacturers will also be challenged to make their produce better which will of course be a great benefit for the consumers. Moreover, the challenge could extend to the creation of new products to keep the competition and trade going not to mention the wide variety of which consumers can choose from. This could also lead to the rise of more innovative entrepreneurs who could pose a healthy competition in the market to further the necessary improvements in the trade. In the absence of monopoly, small entrepreneurs will be encouraged to join in the competition, giving everyone equal chances to be in the business world. On the other hand, in the absence of the antitrust policy limiting the unnecessary activities of producers, a tight grasp on the prices, dictated by only a few will surely be difficult for consumers as they will have no power to affect the price control. On the other hand, competition could bring along negative effects like vicious thoughts among producers to go to the extent of having undesirable ways to gain customers. This could really be a real threat to the industry as especially when competitions get tight. There is the great possibility of false transactions that could really injure not only those involving themselves to such actions but to competitors and consumers as well. Bribery would not be far from being performed as it is the aim of every producer to bring out to the market his produce at a good price where profit would be good. False advertisements can also put the consumers in danger when producers think of ways on how to encourage consumers to buy their products. Harm will also be done to companies and individuals, too when they scheme to rise to the top disregarding their values as there would also be the possibility of invasion of business secrets. In conclusion, despite the debatable issues about the antitrust policy, it is still embraced until this day because of the protection and discipline it entails to both producers and consumers. Anyway, that is what economics management is all about. Like any other policy, there will always be a flaw that needs to be improved as the time and needs change. Nevertheless its purpose is always for the good of those concerned not only of one party but two whose desires are extremely different. Balancing these desires would always be difficult for a policy to accomplish so it is left for man to adjust to what a policy can not do for him/her. What could be most important to consider would be that the policy’s primary objective is satisfied extending not only to the aimed object but to other factors as well like in this instance, the consumers. References Baumol, William J. and Blinder, Alan S. (1998). Economics. Principles and Policies. 451-458. Bell, Meredith E.B and Laskin, Elena. Questia. Trusted Online Research. < www.google.com.ph/#hl=en&biw=1280&bih=643&&sa=X&ei=Xra1TI20Ec3QcbPNlZkI&ved=0CBIQvgUoAA&q=interseller+price+verification&nfpr=1&fp=d3303507578049fd>. Web. St. Olaf College. 1978. < www.stolaf.edu/people/becker/anitrust/summaries/438us422.htm>. Web. Read More