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Home / Economy & Politics / Global economy / “Competition law” – What is it? What does it do?

“Competition law” – What is it? What does it do?

Some of you may have heard of phrases like “competition law,” “antitrust law” or “anti-monopoly law.” But what are they? What kind of good do those laws do for us?

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Imagine this situation – Only one company (let’s call this company “Pear”) manufactures and sells laptop computers in this world. What do you think will happen?

Pears

First, Pear manufactures laptop computers – let’s say the manufacturing costs is USD 500 per laptop computer.

Next step is Pear selling the products – what do you think Pear will do in relation to pricing? Do you think Pear will sell them at lower price than USD 500 per laptop computer? Or do you think Pear sets a price higher than USD 500?

I suppose the answer is pretty clear – the latter.

If the selling price is lower than USD 500, then Pear would financially suffer because they cannot off-set the manufacturing costs or gain any profit. What would they do then? They set the price higher than USD 500 to set off the manufacturing costs and make profit.

Let’s ask a further question – what do you think how “higher” the price will be than USD 500? USD 600? USD 1,000? Or even USD 2,000?

We don’t know the answer. What we know for sure is that it is all up to Pear to decide the price. Pear is the only provider of laptop computers and we, consumers, do not have any other choice to buy them other than from Pear.

To sum up, our only choice to get laptop computers is to buy from Pear, no matter how high the price is, or no matter how bad (or good) the quality is.

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Above hypothetical is possible because Pear did not have any other companies that manufacture or sell laptop computers. These “other companies” are called “competitors.”

If there are several companies other than Pear that manufacture and sell laptop computers, each company will seek ways to manufacture better quality laptop computers than competitors, and will try to sell them at a cheaper price than competitors – all in order to attract as many consumers as possible.

As you can see, “try to be better than competitors” and “try to be the most preferred choice for consumers” is the meaning of “competition” under the scheme of competition law.

Competition laws are aimed at preserving “competition among competitors” in order to “protect consumers” from the evil of only-one company (like Pear – which is called “monopoly” in a technical term).

In the end, competition laws are not far away from us – it is the law that protects us consumers and gives us the choice to buy whatever we want to.

Without this, we do not see a big “SALE!” signs at shopping malls.

Yui Ota

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