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Competition Laws and Industrial Action

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Should the price of labor (wages) and its conditions be left entirely to supply and demand in a free market - or should they be subject to regulation, legislation, and political action?

Is industrial action a form of monopolistic and , therefore, anti-competitive behavior?

Should employers be prevented from hiring replacement labor in lieu of their striking labor-force? Do workers have the right to harass and intimidate such "strike breakers" in picket lines?

In this paper, I aim to study anti-trust and competition laws as they apply to business and demonstrate how they can equally be applied to organized labor.

A. THE PHILOSOPHY OF COMPETITION

The aims of competition (anti-trust) laws are to ensure that consumers pay the lowest possible price (the most efficient price) coupled with the highest quality of the goods and services which they consume. Employers consume labor and, in theory, at least, have the same right.

This, according to current economic theories, can be achieved only through effective competition. Competition not only reduces particular prices of specific goods and services - it also tends to have a deflationary effect by reducing the general price level. It pits consumers against producers, producers against other producers (in the battle to win the heart of consumers), labor against competing labor (for instance, migrants), and even consumers against consumers (for example in the healthcare sector in the USA).

This perpetual conflict miraculously increases quality even as prices decrease. Think about the vast improvement on both scores in electrical appliances. The VCR and PC of yesteryear cost thrice as much and provided one third the functions at one tenth the speed.

Yet, labor is an exception. Even as it became more plentiful - its price skyrocketed unsustainably in the developed nations of the world. This caused a shift of jobs overseas to less regulated and cheaper locations (offshoring and outsourcing).

Competition has innumerable advantages:

  1. It encourages manufacturers and service providers (such as workers) to be more efficient, to better respond to the needs of their customers (the employers), to innovate, to initiate, to venture. It optimizes the allocation of resources at the firm level and, as a result, throughout the national economy.
    More simply: producers do not waste resources (capital), consumers and businesses pay less for the same goods and services and, as a result, consumption grows to the benefit of all involved.
  1. The other beneficial effect seems, at first sight, to be an adverse one: competition weeds out the failures, the incompetent, the inefficient, the fat and slow to respond to changing circumstances. Competitors pressure one another to be more efficient, leaner and meaner. This is the very essence of capitalism. It is wrong to say that only the consumer benefits. If a firm improves itself, re-engineers its production processes, introduces new management techniques, and modernizes in order to fight the competition, it stands to reason that it will reap the rewards. Competition benefits the economy, as a whole, the consumers and other producers by a process of natural economic selection where only the fittest survive. Those who are not fit to survive die out and cease to waste scarce resources.

Thus, paradoxically, the poorer the country, the less resources it has - the more it is in need of competition. Only competition can secure the proper and most efficient use of its scarce resources, a maximization of its output and the maximal welfare of its citizens (consumers).

Moreover, we tend to forget that the biggest consumers are businesses (firms) though the most numerous consumers are households. If the local phone company is inefficient (because no one competes with it, being a monopoly) - firms suffer the most: higher charges, bad connections, lost time, effort, money and business. If the banks are dysfunctional (because there is no foreign competition), they do not properly service their clients and firms collapse because of lack of liquidity. It is the business sector in poor countries which should head the crusade to open the country to competition.

Unfortunately, the first discernible results of the introduction of free marketry are unemployment and business closures. People and firms lack the vision, the knowledge and the wherewithal needed to sustain competition. They fiercely oppose it and governments throughout the world bow to protectionist measures and to trade union activism.

To no avail. Closing a country to competition (including in the labor market) only exacerbates the very conditions which necessitated its opening up in the first place. At the end of such a wrong path awaits economic disaster and the forced entry of competitors. A country which closes itself to the world is forced to sell itself cheaply as its economy becomes more and more inefficient, less and less competitive.

Competition Laws aim to establish fairness of commercial conduct among entrepreneurs and competitors which are the sources of said competition and innovation. But anti-trust and monopoly legislation and regulation should be as rigorously applied to the holy cow of labor and, in particular, organized labor.

Experience - buttressed by research - helped to establish the following four principles:

  1. There should be no barriers to the entry of new market players (barring criminal and moral barriers to certain types of activities and to certain goods and services offered). In other words, there should be no barrier to hiring new or replacement workers at any price and in any conditions. Picket lines are an anti-competitive practice.
  1. The larger the operation, the greater the economies of scale (and, usually, the lower the prices of goods and services).
    This, however, is not always true. There is a Minimum Efficient Scale - MES - beyond which prices begin to rise due to the monopolization of the markets. This MES was empirically fixed at 10% of the market in any one good or service. In other words: trade and labor unions should be encouraged to capture up to 10% of their "market" (in order to allow prices to remain stable in real terms) and discouraged to cross this barrier, lest prices (wages) tend to rise again.
  1. Efficient competition does not exist when a market is controlled by less than 10 firms with big size differences. An oligopoly should be declared whenever 4 firms control more than 40% of the market and the biggest of them controls more than 12% of it. This applies to organized labor as well.
  1. A competitive price (wage) is comprised of a minimal cost plus an equilibrium "profit" (or premium) which does not encourage either an exit of workers from the workforce (because it is too low), nor their entry (because it is too high).

Left to their own devices, firms tend to liquidate competitors (predation), buy them out or collude with them to raise prices. The 1890 Sherman Antitrust Act in the USA forbade the latter (section 1) and prohibited monopolization or dumping as a method to eliminate competitors.

Later acts (Clayton, 1914 and the Federal Trade Commission Act of the same year) added forbidden activities: tying arrangements, boycotts, territorial divisions, non-competitive mergers, price discrimination, exclusive dealing, unfair acts, practices and methods. Both consumers and producers who felt offended were given access to the Justice Department and to the FTC or the right to sue in a federal court and be eligible to receive treble damages.

It is only fair to mention the "intellectual competition", which opposes the above premises. Many important economists think that competition laws represent an unwarranted and harmful intervention of the State in the markets. Some believe that the State should own important industries (J.K. Galbraith), others - that industries should be encouraged to grow because only size guarantees survival, lower prices and innovation (Ellis Hawley). Yet others support the cause of laissez faire (Marc Eisner).

These three antithetical approaches are, by no means, new. One leads to socialism and communism, the other to corporatism and monopolies and the third to jungle-ization of the market (what the Europeans derisively call: the Anglo-Saxon model).

It is politically incorrect to regard labor as a mere commodity whose price should be determined exclusively by market signals and market forces. This view has gone out of fashion more than 100 years ago with the emergence of powerful labor organizations and influential left-wing scholars and thinkers.

But globalization changes all that. Less regulated worldwide markets in skilled and unskilled (mainly migrant) workers rendered labor a tradable service. As the labor movement crumbled and membership in trade unions with restrictive practices dwindled, wages are increasingly determined by direct negotiations between individual employees and their prospective or actual employers.

B. HISTORICAL AND LEGAL CONSIDERATIONS

Why does the State involve itself in the machinations of the free market? Because often markets fail or are unable or unwilling to provide goods, services, or competition. The purpose of competition laws is to secure a competitive marketplace and thus protect the consumer from unfair, anti-competitive practices. The latter tend to increase prices and reduce the availability and quality of goods and services offered to the consumer.

Such state intervention is usually done by establishing a governmental Authority with full powers to regulate the markets and ensure their fairness and accessibility to new entrants. Lately, international collaboration between such authorities yielded a measure of harmonization and coordinated action (especially in cases of trusts which are the results of mergers and acquisitions).

There is no reason why not to apply this model to labor. Consumers (employers) in the market for labor deserve as much protection as consumers of traditional goods and commodities. Anti-competitive practices in the employment marketplace should be rooted out vigorously.

Competition policy is the antithesis of industrial policy. The former wishes to ensure the conditions and the rules of the game - the latter to recruit the players, train them and win the game. The origin of the former is in the USA during the 19th century and from there it spread to (really was imposed on) Germany and Japan, the defeated countries in the 2nd World War. The European Community (EC) incorporated a competition policy in articles 85 and 86 of the Rome Convention and in Regulation 17 of the Council of Ministers, 1962.

Still, the two most important economic blocks of our time have different goals in mind when implementing competition policies. The USA is more interested in economic (and econometric) results while the EU emphasizes social, regional development and political consequences. The EU also protects the rights of small businesses more vigorously and, to some extent, sacrifices intellectual property rights on the altar of fairness and the free movement of goods and services.

Put differently: the USA protects the producers and the EU shields the consumer. The USA is interested in the maximization of output even at a heightened social cost - the EU is interested in the creation of a just society, a mutually supportive community, even if the economic results are less than optimal.

As competition laws go global and are harmonized across national boundaries, they should be applied rigorously to global labor markets as well.

For example: the 29 (well-off) members of the Organization for Economic Cooperation and Development (OECD) formulated rules governing the harmonization and coordination of international antitrust/competition regulation among its member nations ("The Revised Recommendation of the OECD Council Concerning Cooperation between Member Countries on Restrictive Business Practices Affecting International Trade," OECD Doc. No. C(86)44 (Final) (June 5, 1986), also in 25 International Legal Materials 1629 (1986).

A revised version was reissued. According to it, " …Enterprises should refrain from abuses of a dominant market position; permit purchasers, distributors, and suppliers to freely conduct their businesses; refrain from cartels or restrictive agreements; and consult and cooperate with competent authorities of interested countries".

An agency in one of the member countries tackling an antitrust case, usually notifies another member country whenever an antitrust enforcement action may affect important interests of that country or its nationals (see: OECD Recommendations on Predatory Pricing, 1989).

The United States has bilateral antitrust agreements with Australia, Canada, and Germany, which was followed by a bilateral agreement with the EU in 1991. These provide for coordinated antitrust investigations and prosecutions. The United States has thus reduced the legal and political obstacles which faced its extraterritorial prosecutions and enforcement.

The agreements require one party to notify the other of imminent antitrust actions, to share relevant information, and to consult on potential policy changes. The EU-U.S. Agreement contains a "comity" principle under which each side promises to take into consideration the other's interests when considering antitrust prosecutions. A similar principle is at the basis of Chapter 15 of the North American Free Trade Agreement (NAFTA) - cooperation on antitrust matters.

The United Nations Conference on Restrictive Business Practices adopted a code of conduct in 1979/1980 that was later integrated as a U.N. General Assembly Resolution [U.N. Doc. TD/RBP/10 (1980)]: "The Set of Multilaterally Agreed Equitable Principles and Rules".

According to its provisions, "independent enterprises should refrain from certain practices when they would limit access to markets or otherwise unduly restrain competition".

The following business practices are prohibited. They are fully applicable - and should be unreservedly applied - to trade and labor unions. Anti-competitive practices are rampant in organized labor. The aim is to grant access to to a "cornered market" and its commodity (labor) only to those consumers (employers) who give in and pay a non-equilibrium, unnaturally high, price (wage). Competitors (non-organized and migrant labor) are discouraged, heckled, intimidated, and assaulted, sometimes physically.

All these are common unionized labor devices - all illegal under current competition laws:

  1. Agreements to fix prices (including export and import prices);
  1. Collusive tendering;
  1. Market or customer allocation (division) arrangements;
  1. Allocation of sales or production by quota;
  1. Collective action to enforce arrangements, e.g., by concerted refusals to deal (industrial action, strikes);
  1. Concerted refusal to sell to potential importers; and
  1. Collective denial of access to an arrangement, or association, where such access is crucial to competition and such denial might hamper it. In addition, businesses are forbidden to engage in the abuse of a dominant position in the market by limiting access to it or by otherwise restraining competition by:
  1. Predatory behavior towards competitors;
  2. Discriminatory pricing or terms or conditions in the supply or purchase of goods or services;
  3. Mergers, takeovers, joint ventures, or other acquisitions of control;
  4. Fixing prices for exported goods or resold imported goods;
  5. Import restrictions on legitimately-marked trademarked goods;
  6. Unjustifiably - whether partially or completely - refusing to deal on an enterprise's customary commercial terms, making the supply of goods or services dependent on restrictions on the distribution or manufacturer of other goods, imposing restrictions on the resale or exportation of the same or other goods, and purchase "tie-ins".

C. ANTI - COMPETITIVE STRATEGIES

(Based on Porter's book - "Competitive Strategy")

Anti-competitive practices influence the economy by discouraging foreign investors, encouraging inefficiencies and mismanagement, sustaining artificially high prices, misallocating scarce resources, increasing unemployment, fostering corrupt and criminal practices and, in general, preventing the growth that the country or industry could have attained otherwise.

Strategies for Monopolization

Exclude competitors from distribution channels.

This is common practice in many countries. Open threats are made by the manufacturers of popular products: "If you distribute my competitor's products - you cannot distribute mine. So, choose." Naturally, retail outlets, dealers and distributors always prefer the popular product to the new, competing, one. This practice not only blocks competition - but also innovation, trade and choice or variety.

Organized labor acts in the same way. The threaten the firm: "If you hire these migrants or non-unionized labor - we will deny you our work (we will strike)." They thus exclude the competition and create an artificial pricing environment with distorted market signals.

Buy up competitors and potential competitors.

There is nothing wrong with that. Under certain circumstances, this is even desirable. Consider the Banking System: it is always better to have fewer banks with larger capital than many small banks with inadequate capital inadequacy.

So, consolidation is sometimes welcome, especially where scale enhances viability and affords a higher degree of consumer protection. The line is thin. One should apply both quantitative and qualitative criteria. One way to measure the desirability of such mergers and acquisitions (M&A) is the level of market concentration following the M&A. Is a new monopoly created? Will the new entity be able to set prices unperturbed? stamp out its other competitors? If so, it is not desirable and should be prevented.

Every merger in the USA must be approved by the antitrust authorities. When multinationals merge, they must get the approval of all the competition authorities in all the territories in which they operate. The purchase of "Intuit" by "Microsoft" was prevented by the antitrust department (the "Trust-busters"). A host of airlines was conducting a drawn out battle with competition authorities in the EU, UK and the USA lately.

Probably the only industry exempt from these reasonable and beneficial restrictions is unionized labor. In its heyday, a handful of unions represented all of labor in any given national territory. To this very day, there typically is no more than one labor union per industry - a monopoly on labor in that sector.

Use predatory [below-cost] pricing (also known as dumping) to eliminate competitors or use price retaliation to "discipline" competitors.

This tactic is mostly used by manufacturers in developing or emerging economies and in Japan, China, and Southeast Asia. It consists of "pricing the competition out of the market".

The predator sells his products at a price which is lower even than the costs of production. The result is that he swamps the market, driving out all other competitors. The last one standing, he raises his prices back to normal and, often, above normal. The dumper loses money in the dumping operation and compensates for these losses by charging inflated prices after having the competition eliminated.

Through dumping or even unreasonable and excessive discounting. This could be achieved not only through the price itself. An exceedingly long credit term offered to a distributor or to a buyer is a way of reducing the price. The same applies to sales, promotions, vouchers, gifts. They are all ways to reduce the effective price. The customer calculates the money value of these benefits and deducts them from the price.

This is one anti-competitive practice that is rarely by organized labor.

Raise scale-economy barriers.

Take unfair advantage of size and the resulting scale economies to force conditions upon the competition or upon the distribution channels. In many countries unionized labor lobbies for legislation which fits its purposes and excludes competitors (such as migrant workers, non-unionized labor, or overseas labor in offshoring and outsourcing deals).

Increase "market power (share) and hence profit potential".

This is a classic organized labor stratagem. From its inception, trade unionism was missionary and by means fair and foul constantly recruited new members to increase its market power and prowess. It then leveraged its membership to extract and extort "profits and premium" (excess wages) from employees.

Study the industry's "potential" structure and ways it can be made less competitive.

Even contemplating crime or merely planning it are prohibited. Many industries have "think tanks" and experts whose sole function is to show their firm the ways to minimize competition and to increase market share. Admittedly, the line is very thin: when does a Marketing Plan become criminal?

But, with the exception of the robber barons of the 19th century, no industry ever came close to the deliberate, publicly acknowledged, and well-organized attempt by unionized labor to restructure the labor market to eliminate competition altogether. Everything from propaganda "by word and deed" to intimidation and violence was used.

Arrange for a "rise in entry barriers to block later entrants" and "inflict losses on the entrant".

This could be done by imposing bureaucratic obstacles (of licencing, permits and taxation), scale hindrances (prevent the distribution of small quantities or render it non-profitable), by maintaining "old boy networks" which share political clout and research and development, or by using intellectual property rights to block new entrants. There are other methods too numerous to recount. An effective law should block any action which prevents new entry to a market.

Again, organized labor is the greatest culprit of all. In many industries, it is impossible, on pain of strike, to employ or to be employed without belonging to a union. The members of most unions must pay member dues, possess strict professional qualifications, work according to rigid regulations and methods, adhere to a division of labor with members of other unions, and refuse employment in certain circumstances - all patently anti-competitive practices.

Buy up firms in other industries "as a base from which to change industry structures" there.

This is a way of securing exclusive sources of supply of raw materials, services and complementing products. If a company owns its suppliers and they are single or almost single sources of supply - in effect it has monopolized the market. If a software company owns another software company with a product which can be incorporated in its own products - and the two have substantial market shares in their markets - then their dominant positions reinforce each other's.

Federations and confederations of labor unions are, in effect, cartels, or, at best, oligopolies. By co-opting suppliers of alternative labor, organized labor has been striving consistently towards the position of a monopoly - but without the cumbersome attendant regulation.

"Find ways to encourage particular competitors out of the industry".

If you can't intimidate your competitors you might wish to "make them an offer that they cannot refuse". One way is to buy them, to bribe their key personnel, to offer tempting opportunities in other markets, to swap markets (I will give you my market share in a market which I do not really care for and you will give me your market share in a market in which we are competitors). Other ways are to give the competitors assets, distribution channels and so on on condition that they collude in a cartel.

These are daily occurrences in organized labor. Specific labor unions regularly trade among themselves "markets", workplaces, and groups of members in order to increase their market share and enhance their leverage on the consumers of their "commodity" (the employers).

"Send signals to encourage competition to exit" the industry.

Such signals could be threats, promises, policy measures, attacks on the integrity and quality of the competitor, announcement that the company has set a certain market share as its goal (and will, therefore, not tolerate anyone trying to prevent it from attaining this market share) and any action which directly or indirectly intimidates or convinces competitors to leave the industry. Such an action need not be positive - it can be negative, need not be done by the company - can be done by its political proxies, need not be planned - could be accidental. The results are what matters.

Organized labor regards migrant workers, non-unionized labor, and overseas labor in offshoring and outsourcing deals as the "competition". Trade unions in specific industries and workplaces do their best to intimidate newcomers, exclude them from the shop floor, or "convince" them to exit the market.

How to 'Intimidate' Competitors

Raise "mobility" barriers to keep competitors in the least-profitable segments of the industry.

This is a tactic which preserves the appearance of competition while subverting it. Certain segments, usually less profitable or too small to be of interest, or with dim growth prospects, or which are likely to be opened to fierce domestic and foreign competition are left to new entrants. The more lucrative parts of the markets are zealously guarded by the company. Through legislation, policy measures, withholding of technology and know-how - the firm prevents its competitors from crossing the river into its protected turf.

Again, long a labor strategy. Organized labor has neglected many service industries to concentrate on its core competence - manufacturing. But it has zealously guarded this bastion of traditional unionism and consistently hindered innovation and competition.

Let little firms "develop" an industry and then come in and take it over.

This is precisely what Netscape is saying that Microsoft had done to it. Netscape developed the now lucrative browser application market. Microsoft proved wrong to have discarded the Internet as a fad. As the Internet boomed, Microsoft reversed its position and came up with its own (then, technologically inferior) browser (the Internet Explorer).

It offered it free (sound suspiciously like dumping) bundled with its operating system, "Windows". Inevitably it captured more than 60% of the market, vanquishing Netscape in the [process. It is the view of the antitrust authorities in the USA that Microsoft utilized its dominant position in one market (that of Operating Systems) to annihilate a competitor in another market (that of browsers).

Labor unions often collude in a similar fashion. They assimilate independent or workplace-specific unions and labor organizations and they leverage their monopolistic position in one market to subvert competition in other markets.

Organized labor has been known to use these anti-competitive tactics as well:

Engage in "promotional warfare" by "attacking market shares of others".

This is when the gist of a marketing, lobbying, or advertising campaign is to capture the market share of the competition (for instance, migrant workers, or workers overseas). Direct attack is then made on the competition just in order to abolish it. To sell more in order to maximize profits is allowed and meritorious - to sell more in order to eliminate the competition is wrong and should be disallowed.

Establish a "pattern" of severe retaliation against challengers to "communicate commitment" to resist efforts to win market share.

Again, this retaliation can take a myriad of forms: malicious advertising, a media campaign, adverse legislation, blocking distribution channels, staging a hostile bid in the stock exchange just in order to disrupt the proper and orderly management of the competitor, or more classical forms of industrial action such as the strike and the boycott. Anything which derails the competitor or consumer (employer) whenever he makes headway, gains a larger market share, launches a new product, reduces the prices he pays for labor - can be construed as a "pattern of retaliation".

Maintain excess capacity to be used for "fighting" purposes to discipline ambitious rivals.

Such excess capacity could belong to the offending firm or - through cartel or other arrangements - to a group of offending firms. A labor union, for instance, can selectively aid one firm by being lenient and forthcoming even as it destroys another firm by rigidly insisting on unacceptable and ruinous demands.

Publicize one's "commitment to resist entry" into the market.

Publicize the fact that one has a "monitoring system" to detect any aggressive acts of competitors.

Announce in advance "market share targets" to intimidate competitors into yielding their market share.

How to Proliferate Brand Names

Contract with customers (employers) to "meet or match all price cuts (offered by the competition)" thus denying rivals any hope of growth through price competition (Rarely used by organized labor).

Secure a big enough market share to "corner" the "learning curve," thus denying rivals an opportunity to become efficient.

Efficiency is gained by an increase in market share. Such an increase leads to new demands imposed by the market, to modernization, innovation, the introduction of new management techniques (example: Just In Time inventory management), joint ventures, training of personnel, technology transfers, development of proprietary intellectual property and so on. Deprived of a growing market share - the competitor does not feel the need to learn and to better itself. In due time, it dwindles and dies. This tactic is particularly used against overseas contractors which provide cheap labor in offshoring or outsourcing deals.

Acquire a wall of "defensive" laws, regulations, court precedents, and political support to deny competitors unfettered access to the market.

"Harvest" market position in a no-growth industry by raising prices, lowering quality, and stopping all investment and in it. Trade unions in smokestack industries often behave this way.

Create or encourage capital scarcity.

By colluding with sources of financing (e.g., regional, national, or investment banks), by absorbing any capital offered by the State, by the capital markets, through the banks, by spreading malicious news which serve to lower the credit-worthiness of the competition, by legislating special tax and financing loopholes and so on.

Introduce high advertising-intensity.

This is very difficult to measure. There are no objective criteria which do not go against the grain of the fundamental right to freedom of expression. However, truth in advertising should be strictly observed. Practices such as dragging the competition (e.g., an independent labor union, migrant workers, overseas contract workers) through the mud or derogatorily referring to its products or services in advertising campaigns should be banned and the ban should be enforced.

Proliferate "brand names" to make it too expensive for small firms to grow.

By creating and maintaining a host of absolutely unnecessary brand names (e.g., unions), the competition's brand names are crowded out. Again, this cannot be legislated against. A firm has the right to create and maintain as many brand names as it sees fit. In the long term, the market exacts a price and thus punishes such a union because, ultimately, its own brand name suffers from the proliferation.

Get a "corner" (control, manipulate and regulate) on raw materials, government licenses, contracts, subsidies, and patents (and, of course, prevent the competition from having access to them).

Build up "political capital" with government bodies; overseas, get "protection" from "the host government".

'Vertical' Barriers

Practice a "preemptive strategy" by capturing all capacity expansion in the industry (simply unionizing in all the companies that own or develop it).

This serves to "deny competitors enough residual demand". Residual demand, as we previously explained, causes firms to be efficient. Once efficient, they develop enough power to "credibly retaliate" and thereby "enforce an orderly expansion process" to prevent overcapacity

Create "switching" costs.

Through legislation, bureaucracy, control of the media, cornering advertising space in the media, controlling infrastructure, owning intellectual property, owning, controlling or intimidating distribution channels and suppliers and so on.

Impose vertical "price squeezes".

By owning, controlling, colluding with, or intimidating suppliers and distributors of labor, marketing channels and wholesale and retail outlets into not collaborating with the competition.

Practice vertical integration (buying suppliers and distribution and marketing channels of labor).

This has the following effects:

The union gains a access into marketing and business information in the industry. It defends itself against a supplier's pricing power.

It defends itself against foreclosure, bankruptcy and restructuring or reorganization. Owning your potential competitors (for instance, private employment and placement agencies) means that the supplies do not cease even when payment is not affected, for instance.

The union thus protects proprietary information from competitors - otherwise it might be forced to give outsiders access to its records and intellectual property.

It raises entry and mobility barriers against competitors. This is why the State should legislate and act against any purchase, or other types of control of suppliers and marketing channels which service competitors and thus enhance competition.

It serves to "prove that a threat of full integration is credible" and thus intimidate competitors.

Finally, it gets "detailed cost information" in an adjacent industry (but doesn't integrate it into a "highly competitive industry").

"Capture distribution outlets" by vertical integration to "increase barriers".

How to 'Consolidate' the Industry - The Unionized Labor Way

Send "signals" to threaten, bluff, preempt, or collude with competitors.

Use a "fighting brand" of laborers (low-priced workers used only for price-cutting).

Use "cross parry" (retaliate in another part of a competitor's market).

Harass competitors with antitrust, labor-related, and anti-discrimination lawsuits and other litigious techniques.

Use "brute force" to attack competitors or use "focal points" of pressure to collude with competitors on price.

"Load up customers (employers)" at cut-rate prices to "deny new entrants a base" and force them to "withdraw" from market.

Practice "buyer selection," focusing on those that are the most "vulnerable" (easiest to overcharge) and discriminating against and for certain types of consumers (employers).

"Consolidate" the industry so as to "overcome industry fragmentation".

This last argument is highly successful with US federal courts in the last decade. There is an intuitive feeling that few players make for a better market and that a consolidated industry is bound to be more efficient, better able to compete and to survive and, ultimately, better positioned to lower prices, to conduct costly research and development and to increase quality. In the words of Porter: "(The) pay-off to consolidating a fragmented industry can be high because... small and weak competitors offer little threat of retaliation."

Time one's own capacity additions; never sell old capacity "to anyone who will use it in the same industry" and buy out "and retire competitors' capacity".


About the Author

Sam Vaknin is the author of "Malignant Self Love - Narcissism Revisited" and "After the Rain - How the West Lost the East". He is a columnist in "Central Europe Review", United Press International (UPI) and ebookweb.org and the editor of mental health and Central East Europe categories in The Open Directory, Suite101 and searcheurope.com. Until recently, he served as the Economic Advisor to the Government of Macedonia. 
His web site: http://samvak.tripod.com 


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Article Published/Sorted/Amended on Scopulus 2007-11-03 19:01:15 in Economic Articles

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