October 25, 2014

Scrolling Headlines:

Michael Kimmel speaks to UMass students about ‘Guyland’ -

Thursday, October 23, 2014

UMass football looks for third straight win against Toledo on Saturday -

Thursday, October 23, 2014

‘Love is Strange’ is beautiful, painful and groundbreaking -

Thursday, October 23, 2014

White supremacy and settler colonialism at UMass -

Thursday, October 23, 2014

UMass hockey hopes first win will propel them past Hockey East rivals -

Thursday, October 23, 2014

UMass’ second line playing and succeeding with young talent early in the season. -

Thursday, October 23, 2014

‘The Good Wife’ returns as strong as ever -

Thursday, October 23, 2014

Professor receives grant to cover massive election survey panel -

Thursday, October 23, 2014

Unions rally over recent concession proposals -

Thursday, October 23, 2014

NFL Pick’em games return to the Massachusetts Daily Collegian -

Thursday, October 23, 2014

UMass celebrates Campus Sustainability Day -

Thursday, October 23, 2014

“Fury” falls just short of greatness -

Thursday, October 23, 2014

Minutewomen look to continue their season in weekend game against Saint Bonaventure. -

Thursday, October 23, 2014

New meal plans receive mixed reviews from students -

Thursday, October 23, 2014

ISIS’s magazine is good for the West -

Thursday, October 23, 2014

UMass women’s soccer controls its own destiny as conference tournament approaches -

Wednesday, October 22, 2014

UMass soccer deploys new formation with Keys, Jess -

Wednesday, October 22, 2014

UMass calling on young swimmers to continue strong start to the year -

Wednesday, October 22, 2014

WMU, Ohio, NIU pick up wins in busy MAC weekend -

Wednesday, October 22, 2014

A comprehensive guide to the Ebola virus -

Wednesday, October 22, 2014

Do Antitrust laws really promote competition?

o_sam_o/flickr

On Thursday, the U.S. Department of Justice moved to file a lawsuit against Anheuser-Busch InBev from buying the half of Mexican brewer Grupo Modelo that it does not already own. InBev, the makers of beer brands such as Budweiser, wishes to spend $20.1 billion on the new acquisition. The company currently controls roughly 39 percent of the U.S. market share, with MillerCoors in second, with 26 percent of the market. Modelo controls about 7 percent of the market share.

By purchasing Modelo, InBev’s U.S. market share would have increased to 46 percent. However, InBev had planned to sell Modelo’s 50 percent stake in Crown Imports, its U.S. distributor, to Constellation Brands for $1.85 billion, giving it full control of Crown. This would have led to balancing out the market forces.

The Justice Department’s reasoning for the lawsuit was that Modelo is an important competitor in the beer market. According to the DOJ, when InBev raises prices on its wares, MillerCoors typically follows suit. Modelo, however, retains their prices, and therefore eats up more of the market share. InBev retaliated with a statement that Justice Department’s decision to sue was “inconsistent with the law, the facts and the reality of the market place.”

The DOJ’s lawsuit is based on a set of laws called the antitrust laws. Antitrust laws, first passed in 1890 with the Sherman Antitrust Act, are designed to prevent businesses from engaging in activity that is deemed to be “destructive to competition.” Similar antitrust lawsuits have been filed in recent years, most notably in 2011, when the Justice Department blocked AT&T’s acquisition of T-Mobile USA.

The Justice Department claims that, if InBev were to buy Modelo out, they would be able to raise the prices of their products as they wished, without market restrictions. But is that what really would have happened? Would InBev develop “uncontrollable economic powers,” and become a coercive monopoly of the beer market?

Monopolies have always been regarded as “able to wield arbitrary power in the market.” Where did this misconception arise from? From the railroads of the Gilded Age.

In the 1870s through the 1890s in America, the railroads were powerful transportation entities, as they were the only companies capable of transporting goods and people across the continent. During this time, farmers in the West often felt the pressure of these railroads, lamenting that these companies were able to charge whatever fares they pleased. Their protests eventually led to the National Grange movement, which in turn, led to the passage of the 1887 Interstate Commerce Act.

How was it that the railroads were able to orchestrate such power in the West?

In the East, prior to the Civil War, railroads developed with stiff competition from other forms of transportation, such as riverboats, barges and wagons. Beginning in the 1860s, however, there were calls to expand the railroads out West, to connect California to the rest of the nation. However, railroad companies were hesitant to do so, given that the profit returns were not worth the cost. However, national pride and the “public good,” were at stake, and thus, the government agreed to subsidize the railroad companies in their expansion out West. Railroads were given close to 100 million acres of public land for their use. However, the land granted was for single companies only, so no competing railroad could place their tracks there. Wagons and barges could also not afford to compete in the expansion Westward. Thus, with governmental interference in the economy, the railroads were able to “break free” of the competitive ties that hold companies from becoming too powerful.

In a free market economy, the businesses are dictated by the rules of competition. Monopolies are not immune to these laws. If a monopoly were to drive up the costs of their products, then smaller companies would easily find their way into the monopoly’s profit margins. In retaliation, the monopoly would seek to undercut its competitors by offering prices below the market value, the company wouldn’t last very long. Companies exist to make money, and one that loses money won’t survive.

The only means by which a company is able to operate outside the laws of the market, is when a legal force prevents the existence of other competitors. Thus, a coercive monopoly can only exist if there is a governmental force perpetuating its existence.

If InBev was successful in purchasing Modelo, and its market share increased to 46 percent, another 54 percent of the market would remain out of their grasp to counter-balance their effects. If the company did decide to raise the prices, MillerCoors, Heineken and several other smaller brewers could move in and capitalize on this, and take more of the market share. Or, if InBev tries to undercut its competition, it would begin to lose money, which is unsustainable. Keeping competitors out of a market is extraordinarily difficult, even if a company has as large a share as InBev would have.

Antitrust laws are, as InBev recently said, “inconsistent with … the facts and the reality of the market place.” They do not serve to “promote competition,” rather, they weaken it, through unnecessary governmental regulations and subsidies. Any issue of economic stranglehold by companies is caused not by companies in a free market, but when the market is made not free.

Victor Paduchak is a Collegian contributor. He can be reached at vpaducha@student.umass.edu.

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