Antitrust Practices and Market Power

This paper will looks at the antitrust law, and mostly, the Sherman Act of 1870. A law suit was instituted against the NCAA by the Tom Corbett, the Governor of Pennsylvania. The Governor argued that the NCAA violated the provision of the Act. In addition, the paper will evaluate monopolies and oligopolies and provide an example to show that such structures can be detrimental to a country’s economy.

Before the 1970s, the NCAA did not encounter any legal challenges as far as antitrust laws are concerned. After 1970, NCAA has consistently faced many antitrust lawsuits by “student athletes, competing athletic bodies, coaches, boosters, alumni, and cheerleaders” (Thornton, 2010, p. 589). According to Thornton, NCCA has not been subject to legal battles emanating from the Sherman Antitrust Act as courts basically reflected on “amateurism and education rather than commercialism” (p. 589). However, in the recent past (Thornton, 2010) the courts have become aware of the company’s engagements in commercial activities. Based on these trends, the company has continued to face legal challenges for engaging in anticompetitive activities. On January 2013, the governor of Pennsylvania filed a legal suit against the NCAA in Harrisburg. The antitrust law was based on the company’s actions that clearly fluted the requirements of the Sherman Act (Baumol and Blinder, 2011). NCAA was accused of being robber baron. The governor accused NCCA for a myriad of charges and declared that the association contravened the Sherman Act.

Pecuniary and Non-pecuniary costs associated with the Antitrust Behaviour

The antitrust act that was violated in this case was the Sherman Act. The Sherman Act is built on two provisions. The first one being that an action of an entity is based on mistrust or conspiracy to defraud others (Thornton, 2010). The second aspect is a company’s attempt to monopolize a particular business (Baumol and Blinder, 2011). In this case, the NCAA violated the Sherman Act because the association had harsh punishments on the State’s football team and the punishments were instituted without citing any legal grounds. The monopolistic tendencies in punishing teams did not only affect the state, but also extended to the citizens, and affected the economy. The action of the association did not benefit the society, but the association itself.

Disadvantages of Monopoly Power

Monopolies arise in two different ways. Natural monopolies arise when the advantages of the industry are only possible for single firm to produce the entire output at a lower cost than when the market has many players. A government monopoly is owned by the government to provide certain services such garbage collection or public water. Monopolies and oligopolies can exploit the economies of scale in order to deter potential entrants into the market (Thornton, 2010). Further, they can engage in rent-seeking behaviour to avoid any potential entrants into the market. Therefore, monopolies and oligopolies are costly to an economy. Because of such barriers, the level of service can be extremely poor because of lack of competition (Baumol and Blinder, 2011). In the case of an oligopoly, the firms can enter into collusion and engage in pricing fixing activities in order to charge a higher price. Monopolies and oligopolies can engage in such malpractices while offering poor quality products to the people.

Example of Monopoly

A monopoly occurs where there is no other group to sell or offer the product. True monopolies rarely exist because without competition, business will offer substandard products at very high costs. There are good examples of natural and government monopolies that exist to offer certain services (Baumol and Blinder, 2011). These are registered to provide public utilities such garbage collection, electricity and water supply.

References

Baumol, W. and Blinder, A. (2011). Microeconomics: Principles and Policy, London: Cengage Learning.

Graham, J. R. (2013). Managerial Economics for Dummies. New York: John Wiley and Sons.

Thornton, K. P. (2010). Sports Law, London: Cengage Learning.