Applying Antimonopoly Laws

In the XIX century, cartels were called Trusts, because of this, the laws that fractioned monopolies and cartels were called Anti-Trust Acts, or Anti-Monopoly Acts. Out of all these laws, the most famous within the United States was he Sherman Anti-Trust Act, and most of the other countries have approved similar legislation with the purpose of fractioning monopolies and cartels.

A big problem with the antimonopoly laws is deciding when to regulate them or fraction them in order to promote competition. The first signal that a cartel could potentially exists, is obviously when you only see a few companies in certain industry. But due to Prisoner’s Dilemma, in some cases not even a company with two companies would be able to form an effective cartel. Therefore, in general the authorities cannot limit themselves to signaling that there are not many companies in the industry.

In general there has got to be concrete proof of collusion. In other words, if one day all of the companies of an oligopoly decide, without coordination between each other, to reduce their production down to half and in that way be able to increase the prices, this is not necessarily illegal. There would have to be more ground evidence then just that.

In some cases, the industry fractions into even more companies to promote competition, but in other cases the prices that the companies can charge or the amounts they can produce can be regulated. Often times the specific policy depends on the specific circumstances of the companies in the industry and of those that elaborate the policies who consider what is best to promote general well being.