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The Anti Trust Laws And Monopoly Economics Essay

Monopoly is the condition when there is one enterprise or a person is the only supplier in the market.
Characteristics Profit Maximization: Maximizes profits.
Price Maker: Decides the price of the good or product to be sold.
High Barriers to Entry: Other sellers are unable to enter the market of the monopoly.
Single seller: In a monopoly there is one seller of the good that produces all the output. Therefore, the whole market is being served by a single company, and for practical purposes, the company is the same as the industry.
Price Discrimination: A monopolist can change the price and quality of the product. He sells more quantities charging less price for the product in a very elastic market and sells less quantities charging high price in a less elastic market.
Why is monopoly inefficient in the market?
The standard case against monopoly is that the monopoly price is higher than both marginal and average costs leading to a loss of allocative efficiency and a failure of the market mechanism. The monopolist is extracting a price from consumers that is above the cost of resources used in making the product and, consumers’ needs and wants are not being satisfied, as the product is being under-consumed. [1]
Figure
deadweight welfare loss
Source : Riley ,Geoff; Eton College, September 2006 ,http://tutor2u.net/economics/revision-notes/a2-micro-monopoly-economic-efficiency.html taken on 2012-08-28.
The monopolist is able to charge a higher price restrict total output and thereby reduce economic welfare. The rise in price to Pmon reduces consumer surplus. Some of this reduction in consumer welfare is a pure transfer to the producer through higher profits, but some of the loss is not reassigned to any other economic agent. This is known as the deadweight loss and is equal to the area ABC.
Here figure 2 shows the combined graph of the competitive market and monopoly. A monopolist would choose to produce less ie Q1 in order to charge higher prices i.e P1. Therefore the monopoly leads to artificial scarcity,which is nothing but Dead weight loss.
Figure
iagram which makes the working assumption of constant long run average and marginal costs under both competition and monopoly.
How consumers are exploited in monopolies Since monopolies are the only provider, they can set pretty much any price they choose, regardless of demand, because they know the consumer has no choice. They can also supply inferior products.
In order to avoid we have Antitrust laws for the welfare of the consumers.
Origin of the antitrust laws Objectives: Database: Methods Used: How the competition commission or teh federal laws prove that the mopolies are abusive Anti Trust Law: Are set of rules and regulations designed to promote a competitive economy by prohibiting actions that restrain, or are likely to restrain, competition, and by restricting the forms of allowable market structure [2] .
The antitrust laws therefore forbid the wrongful acquisition or preservation of monopoly power.
They also govern proposed mergers and acquisitions that are sufficiently large to constitute a threat to competition, and they address commercial practices that pose an arguable danger to competition on the merits in a properly defined antitrust market [3] .
Principles of Anti Trust Laws: Prohibiting and restricting free trading and competition between businesses. This includes in particular the repression of free trade caused by cartels,
banning abusive behaviour by a firm dominating a markets like predatory pricing, tying, price gouging, refusal to deal, and many others
Supervising the mergers and acquisitions of large corporations, including some joint ventures. E.g.: Giving license.
Protecting the interests of consumers (consumer welfare) and ensuring that entrepreneurs have an opportunity to have a fair competition.
4 Anti Trust Law in US There are two basic antitrust laws in the United States -the Sherman Act and the Clayton Act both are enforceable either by the Antitrust Division of the Department of Justice, the Federal Trade Commission or private persons alleging economic injury caused by violation.
United States vs. Microsoft The law and economics of United States vs. Microsoft, is a landmark case of antitrust intervention in network industries. The Sherman’s antitrust law in the areas that apply to the Microsoft case are of
Section 1: “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony. [5]
Section 2: “Every 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 declared to be illegal [6] .
The U.S. District Court came out several allegations on Microsoft based on their functions in the networking industries such as
1. The relevant antitrust market is the PC operating systems market for Intel compatible computers.
2. Microsoft has a monopoly in this market “where it enjoys a large and stable market share.
3. Microsoft’s monopoly is protected by the applications barrier to entry, which the judge defines as the availability of an abundance of applications running Windows.
4. Microsoft used its monopoly power in the PC operating systems market to
exclude rivals and harm competitors.
5. Microsoft hobbled the innovation process.
6. Microsoft’s actions harmed consumers.
7. Various Microsoft contracts had anti-competitive implications, but Microsoft is not guilty of anti-competitive exclusive dealing contracts hindering the distribution of Netscape Navigator.
Based on those allegations the Microsoft was sued by United States department of justice and 19 states, that
(i) It monopolized the market for operating systems of personal computers and took anti-competitive actions to illegally maintain its monopoly.
(ii) It attempted to monopolize the market for Internet browsers because such browsers would create competition for operating systems;
(iii) It bundled its browser (Internet Explorer) with Windows; and that it engaged in a number of other anti-competitive exclusionary arrangements.
Microsoft Defence:
Microsoft stated that the combination of Microsoft Windows and Internet Explorer was the fruit of innovation and those two were of same product an linked together. It was just competing hard against Netscape, that such competition was welfare-enhancing, and that it did not commit any anti-competitive Act and monopoly power in operating the market. It also stated that it is a leader in software innovation and that it has enhanced rather than hobbled the innovation process. [7]
Anti Trust Law in EUROPE As the European Union has grown, its methods of antitrust enforcement have evolved. The antitrust laws of European Union are quite similar to those of United States. Article 81 of the Treaty of the European Community concerns restraints of trade much like Section 1 of Sherman Act. Article 82, which focuses on the abuses of market power by dominant firms, is similar in many ways to Section 2 of the Sherman Act. Finally, with respect to mergers, the European Merger Control Act is similar in spirit to Section 7 of Clayton Act.
The Commission accepted the joint selling of sport media rights by football associations on behalf of football clubs, provided certain conditions were fulfilled. These include, inter alia, the sale of sport media rights through open and transparent tender procedures, a limitation of the rights’ duration and the breaking down of the rights into different packages to allow several competitors to acquire rights [8] .
Antitrust and EU law are gaining significance for two reasons. Firstly, antitrust law continues to infiltrate daily business practice. The number of companies involved in, for example, administrative fine proceedings, is constantly rising. Secondly, the continuing enlargement of the EU enhances the importance of EU law. Most legal issues cannot be dealt with appropriately without considering the EU law background. antitrust and EU law clients are medium sized and large companies from all branches as well as public authorities and their companies, as the latter are in principle also subject to antitrust law. “In the United States, the main focus of antitrust law is protecting the consumer; in Europe, it is preserving competition” [9] .
Anti Trust Law in INDIA Monopolies and Restrictive Trade Practices (MRTP) Act: The MRTP Act (1969) is regarded as the competition law of India, because it defines a restrictive trade practice which has, or may have the effect of preventing, distorting or restricting competition in any manner [10]
MRTP has become obsolete pertaining to international economic developments relating to competition law and there was a need of law which curbs monopolies and promotes competition.
The Competition Act has replaced the Monopolies and Restrictive Trade Practices Act, 1969 and has dissolved the Monopolies and Restrictive Trade Practices Commission.
The Competition Act, 2002 was passed by the Parliament in the year 2002, to which the President accorded assent in January, 2003. It was subsequently amended by the Competition (Amendment) Act, 2007.
In accordance with the provisions of the Amendment Act, the Competition Commission of India and the Competition Appellate Tribunal have been established. The Competition Commission of India is now fully functional with a Chairperson and six members. The provisions of the Competition Act relating to anti-competitive agreements and abuse of dominant position were notified on May 20, 2009 [11]
Principles of COMPETITION COMMISSION ACT It prevents practices having adverse effect on competition and protects consumers.
It prohibits enterprises from entering into anti-competitive agreements, and abusing their dominant position and forming combinations.
It looks into if any firm violates the act or if any complaint is filed.
Powers of CCI CCI has the power to grant interim relief and award compensation.
Impose penalty.
To levy penalty if opposed or making false statements or omission information, etc. [12]
Division of dominant enterprise CCI can recommend the Central Government division of a dominant enterprise to ensure that it does not abuse its position. On the recommendation, the Central Government under Section 28 may direct division of such an enterprise.
Extent of penalty For abusing its dominant position or entering in anticompetitive agreements, CCI can levy penalty to the extent of 10 per cent of the average of the turnover for the preceding three financial years. The penalty is higher in case of such abuses by cartels and penalty can be equivalent to three times of the amount of profits made out of such agreement by the cartel or ten per cent of the average turnover of the cartel for the preceding three financial years [13] .
Appeal from CCI.-any person aggrieved by decision or order of CCI may file an appeal to the Supreme Court within 60 days from the date of the communication of the decision or order
Competition Law and Indian Pharmaceutical Industry
The Indian Pharmaceutical Industry is among top five producers of bulk drugs in the
World. Pharmaceuticals market can be roughly classified into Bulk drugs (20% of the
market) registering growth rates of 20% and formulations (80% of the market) with an annual growth rate of 15%. [14]
CCI study Competition in the Indian pharmaceutical Industry The study has issues concerning working of pharmaceutical sector both from horizontal and vertical point of view.
The study highlighted that the pharmaceutical markets in India are growing at an exponential rate. However, price competition among retailers can hardly be witnessed.
The drug promotion matrix reveals that there are various unfair trade practices prevailing in the industry. In fact, authoritative studies, including those by the EU competition commission have noted that pharmaceutical companies spend more on promotion and advertising and less on research and development.
There is evidence of inefficient allocation of resources in the distribution of pharmaceutical products as studies available indicate that the profitability margins in the distribution chain is quite high and specially in non-DPCO drugs and non-scheduled drugs in the pharmaceutical industry in India. This has implications on competition in the sector and unfair enrichment through wealth transfers.
Act: we have for the of pharmaceutical industry is Indian Patent Act. This act controls the companies in regulating their projects and helps in regulating competitive market. [15]
Competition in the Indian cement industry Ernst

Importance of Small and medium Enterprises in Nigeria

INTRODUTION DEFINITION OF SMALL AND MEDIUM ENTERPRISE There are no universal definition of SMEs that are accepted widely (Mutula and Brakel 2006, p. 403). The definition of SMEs varies across countries and according to sectors (like financial, labour etc) suitability but this is normally based on employment, assets or combination of the two (Ongori and Lutham 2009, p. 94) .Various organisations, institution and bodies define SMEs differently depending on the purpose, objective or use. For example SME according to Organization for Economic Co-operation and Development OECD (2005) is considered to be independent firms that employ less than a given number of employees. However, SMEs were classified in terms of size, and financial assets. Firms that have up to 250 employees are classified as small and medium enterprises while small firms are those that have up to 50 employees and a firm with 10 employees or less were regarded as micro firms respectively.
In the United States, the small business administration SBA (2011) a government department, defines a small business using ‘size standard’, as one that is independently owned and operated and meets employment or sales standard develop by the agency and the concern cannot be dominant in its field, on a national basis. For most industries these standards are as follows. This in addition shows a similar trend as in Nigeria, even if the exchange value makes the financial criteria to be different (Ayozie, 2006)
Manufacturing: – Number of employees range up to 1500, depending on the industry.
Retailing: – Small if annual sales or receipts are not over 2 million to 7.5million dollars.
Wholesaling:- Small if yearly sales are not over 9.5 to 22 million dollars
Services: – Annual receipts not exceeding 2 million to 8 million dollars.
According to the Central Bank of Nigeria report (2003), Small scale firms are firms with a workforce of 11 – 100 workers and a total cost of not more than 50 million naira including working capital and excluding cost of land, while Medium scale firms was defined as firms that have a labour force of between 101 – 300 workers with a total cost of over N50 million naira but not less than N200 million naira including working capital but excluding cost of land.
The Small and Medium Industries and Equity Investment Scheme (SMIEIs), defined SME as an enterprise with a 200 million naira maximum asset base, with the exclusion of land and working capital and with a workforce of not less than 10 employees and not more than 300 employees. Akabueze,(2002).
Small scale business, small scale industries and small scale entrepreneurship are used interchangeably to man a small scale industry firm. According to Ayozie (2006), in Nigeria and worldwide, there are no agreed definition of small businesses. A lot authors, scholars, and schools have diverse ideas as to the differences in capital outlay, number of employees, sales turnover, fixed capital investment, available plant and machinery, market share and the level of development, these features equally vary from one country to the other.
The Third National Development plan of Nigeria (1975 – 1980) defined a small scale business as a manufacturing firm that employs less than ten people, or whose machinery and cost of equipment does not exceed N600,000
The Federal Government Small Scale Industry Development Plan of 1980 defined a small scale business in Nigeria as any manufacturing process or service industry, with a capital not exceeding N150, 000 in manufacturing and equipment alone.
Many enterprises in Nigeria are categorized as small business, most of which are in the commercial sector.
IMPORTANCE OF SME The role small and medium enterprises play in the development of country is very important. SMEs have greatly contributed to the Nigerian development in terms of employment, growth and development, and marketing of goods and services (Ayozie O, 2006). The Nigerian Government is turning to small and medium scale industries and entrepreneurs as a means of developing the economy and solving problems (Latinwo and Ayozie, 2010). A great percentage of all registered companies in Nigeria are constituted by small scale industries and they have been in existence for a long time (Ayozie, 2006).
Around the world, a lot has been said about SMEs. Also there has been various subject of discussions, seminars, and workshops both locally and internationally about SMEs. Some government have specifically formulated policies to aid the empowering, growth, development and performance of SMEs, while have assisted through loans and fiscal incentives (Onugu, 2005). According to Central bank of Nigeria report (2003) , SMEs are very important economic catalyst in developing and industrialized countries, in developed countries 98% or more than belong to the Small and Medium scale sector. In Japan, 80% of industrial labour force is employed by small firms, 50% in Germany and 46% in USA are employed by smaller businesses.
According to the United Nations Industrial development Organization (UNIDO), developing countries can conquer poverty and inequality by democratizing, deregulating, and liberalizing the integration of global economy. Recent studies have shown that SMEs contribute to over 55% of GDP and over 65% of total employment in high income countries also that SMEs and informal enterprises account for over 60% of GDP and over 70%of total employment in middle income countries (OECD, 2004).
SMEs are important role players in contributing to the transition of agriculture led economies to industrial ones, SMEs help in the absorption of productive resources at all levels of the economy and contribute to the building of flexible economic system in which small and large firms are interlinked (Fida, 2008).
According to Kongolo (2010), SMEs are responsible for the growing forces of the largest growing economy China in terms of national GDP contribution which amount up to 60% diversification of product, scale of assets and creation of employment.
A lot of people rely on the small and medium enterprises either directly or indirectly. Social income distribution, employment and tax revenue, adequate utilization of resources and stable family income are some of the significant effects SMEs have (Fida, 2008).
CHALLENGES OF ICT ADOPTION IN NIGERIAN SME Despite the prospective and enormous contribution of small and medium sector to continued economic development, small firms in Nigeria still do not meet up to expectation (Ihua, 2009). Apulu and Lutham (2009) asserted that there are many factors that affect the performance of Nigerian SMEs and these factors add to their rate of failure. More so, as Costello and Sloane (2003 cited in Apulu and Lutham 2009) the adoption of new technologies by SMEs is delayed by internal obstacles of the firm.
Ongori (2008) stated some challenges faced by small firms to be; poor infrastructure, bad governance, problems of undersized market, legal and organizational barriers, inadequate access to credit, and insufficient regional amalgamation. Previous studies (Ihua, 2009; Adenikinju, 2005; and Akpan-Obong, 2007) contributed to the factors that affect Nigerian SMEs and these factors are (quite similar to that of Ongori, 2008); infrastructural inadequacy, corruption, lack of funding, cost of implementation, inadequate skills and training, cultural factors, electricity limitation, lack of policy/institutional frame work, lack of owner-manager awareness. Accordingly, these factors will be discussed below.
Infrastructural inadequacy is classified as a major problem to the development of the private sector according the Akpan-Obong (2007). However he stated that the condition of infrastructures, particularly telecommunications infrastructure, creates a major barrier to the adoption of ICT in Nigeria. Corruption being is a problem around all over the world and is not peculiar to Nigeria alone. However the corruption case in Nigeria is very alarming and this affects the operations of SMEs one way or the other (Dike, 2005).
Cost of Implementation as defined by Folunsho et al., (2006) is the total amount it will cost a company to implement new technologies. In their study, it was stated further that SMEs in Nigeria fight with the costly implementation of Information and communications technology, thus they ignore ICT and invest their resources on ideas that will yield rapid turnover.
Lack of funding and non utilisation of ICT is another problem faced by Small medium enterprises in Nigeria as this hinders their development (Kuteyi, 2009 cited in Apulu 2009). SMEs need to adopt and utilise change to promote the growth of their business. It was further stated that the acceptance of change, access to fund and adequate information technology in business environment will drive the growth of small medium firms in the country.
OVERVIEW OF SMES IN NIGERIA The economy of developed and developing countries depends on small and medium enterprises and these SMEs are improving their business ideas by inculcating e-commerce Payne (2009). Despite the prospective nature of Nigerian SMEs with features of development of economic growth, technology, and creating more job opportunities. Studies have shown that they cannot adopt e-commerce in their businesses because of lack of technological knowhow of manager as well as inadequate infrastructure, ignorance, corruption poverty and security, Humphrey et al,(2003).
According to a survey conducted in 2002 of firms in the auto-components, food and beverage, electronic goods and engineering manufacturing sectors was conducted in Uganda and Nigeria, Oyelaran-Oyeyinka and Lal,. (2004). The goal was to discover reasons that influenced the e-business adoption by SMEs, including microenterprises. The authors found that, overall, adoption level of e-business was higher in the highly skilled sectors of electrical and electronic goods than in the more labour intensive sectors of auto-components and food and beverages. The Nigerian survey covered 105 SMEs and microenterprises (fewer than 10 employees) in the engineering sector. It was discovered that one third of the firms did not use any ICTs at all, primarily those whose managers had a low standard of academic qualifications. Also organisations that implemented e-business at a higher level were operated by managers who had engineering backgrounds, and had more skilful workers (engineering graduates) among the workers. Their assumption was that limited skill levels in SMEs were a key factor for low ICT usage.
The major obstacle for internet uptake in most companies in both developed and developing countries is very similar. European, Latin American, African and Asian companies reported that internet security was a major setback, after which came poor network connections. The finding showed that the reason why most companies haven’t gone electronic not because of technical skills and capacity shortage but because e-commerce depends on the ability to manage the company and the educational level of the possessor; examples from Asia and Africa (Nigeria) showed that firms where owners had received higher education and had management skills were more likely to use up-and-coming equipment.
DEFINITION OF INFORMATION AND COMMUNICATION TECHNOLOGY A lot of researchers have different definitions of Information and Communications Technology. According to Apulu and Latham (2009), Information and Communication technology proffer great opportunities such as information storing, retrieving, processing, and sharing. Despite this its application by SMEs in both developed and developing countries is plagued. In the context of this study ICT would be simultaneously used with eCommerce
The parliamentary office of science and technology (2006) defined ICT as any technology that aids communication and assists in capturing, processing and transmitting information electronically. Some commonly used ICT that were identified in many countries include radio, television, and print media. More so, Hazbo et’ al (2008 cited in Apulu and Lutham 2009) identified that ICT adoption is crucial to SME as information and communication technology has become a means and enabler of organisational change. The method a company or firm implements in communicating, collaborating and conducting transactions with their customers, suppliers, and distributors via the internet and the ability for the local mall firm to partake in digital economy is referred to as Information and Communication Technology (Goldings et’ al 2008).
According to Pearson publishing (2000), ICT combines telecommunications, computing, and broadcasting and covers any product that will store retrieve, manipulate, transmit, or receive information electronically including telephones, faxes, computers and television.
Ongori and Migiro (2009) defined ICT as a wide range of computerised information communication technology.
FEATURES OF ICT IMPORTANCE OF INFORMATION AND COMMUNICATION TECHNOLOGY A report by OECD (2004) identified that internet connection occurs in all sizes of business but small businesses are slower in the adoption of new Technologies than large ones. However the OECD (2004) reports stated some benefits of ICT and eCommerce applications across intra and inter firm processes and transaction to be; The improvement of information knowledge management in the firm also reduction in the cost of transaction for business to business (B2B) and business to customers (B2C). ICT are an effective tool for recuperating external communications and quality of service for established and prospective customer.
Ongori and Migiro (2009) corroborate that the adoption of ICT would transform business operations in this globalisation era by changing structures of business and the operation of business. Therefore, for SMEs to grow and be successful, they must be able to compete and quickly respond enthusiastically to the constant changing market. However what this implies is that SMEs need to be digitally connected in the market place.
ICT IMPORTANCE TO SME According to Rasmussen (1997, cited in Ongori and Migiro 2009) a very important factor for the survival and success of a small firm, is subtle access to information in the global market
The effective use of ICT will enable SMEs trade internationally and compete favourably in with larger firms (Ramsey et al., 2003, p.255)
FACTORS INFLUENCING THE ADOPTION OF ICT It is so unfortunate that a number of factors restrain SMEs from adopting ICT in developing countries including Nigeria (Apulu and Lutham, 2009). There exists a digital divide which show that ICT adoption varies between developed and developing countries as cited by Golding (2008) in Apulu and Lutham (2009). According to Ihua (2009) there is a very wide technology gap between developing and developed countries. He went on to state that countries are divided digitally because of lack of access and availability of ICT. Thus, more light will be thrown to what the term digital divide means in this context.
DIGITAL DIVIDE
Digital divide is defined as the unequal access to Information and communications technology (Cayla et’al, 2005). This divide looks at the gap in the diffusion of ICT between developing and developed countries, educated and uneducated population or between privileged and unprivileged citizens (Cayla et’ al, 2005). Studies have shown that regional distribution of internet users directly correspond with the disparity of different geographical areas (Hung, 2003). In trying to bridge the digital divide gap Apulu and Lutham (2009) stated that there must be an understanding of local needs conditions. In a report given by World Bank (2002), it was argued that the rapid evolving electronic environment of developing countries face opportunity cost if they delay greater access to use of information infrastructure and information technology (IT) which together make up ICT. Ani et’ al (2007) defined digital divide as the gap that exists between those who have and those who do not have access to modern ICT such as the telephones, computers, internet and related services. According to Adeogun (2003 cited in Ani et’ al 2007) digital divide can occur between countries, and this was described as an “information gulf”, he explained such divide occurs between developing and developed countries and could also be referred to as “international digital divide”. Digital divide can either take place within a nation or within an organization or institution; as long as there a gap exist between those who do and those who do not have access to adequate level of Information and communications technology.
In a survey conducted by Ani et’ al (2007) on bridging the digital divide gap in Nigeria, it was identified that the most serious divide is that of education or literacy level of citizens. The survey showed that the most illiterate people in Nigerian towns or cities were ignorant about the existence or usefulness of ICT. However, three factors that the survey identified to affect the use of internet in Nigeria are:
Poor internet services and infrastructures;
Lack of financial capacity to pay; and
In accessibility to the internet.
The poor time response is associated with traffic congestions due to inability of the country to have its own internet exchange point ‘IXP’ (Eni, 2005). Ani et al., (2007) explained that if the Nigerian government took necessary steps to reduce the problems the digital divide gap could be bridged. Also, private sectors in Nigeria are majorly in charge of providing internet access and as these results in the high cost internet accessibility experienced by the citizens of the country. Government agencies should make internet facilities available to the general public.
Muir and Oppenheim (2002) stated that digital divide is not all about the gap that exists between those who have and those who do not have access to the internet. Digital divide includes associated support services like training, education and a range of important legal, economic and social strategies various governments of developed countries adopt to provide universal information access and also attempt to bridge the gaps that exist between these countries.

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