Actually, on the social perspective, oligopolies are not good for consumers because they work as

monopolies with mutual cooperation. They try to merge or collude and manipulate prices that lead to the
deadweight loss, causing lower production levels and higher prices. So, that’s why government can
sometimes improve market outcomes.

And what policy makers do is they try to promote competition, prevent cooperation to move the
oligopoly outcome closer to the efficient outcome.

So early 1900’s there were a few families that control some very important industries. The Rockefellers
controlled Standard Oil at which basically controlled all the oil production in America. You can see JP
Morgan basically control the banking industry and Vanderbilt’s who controlled the railways and all
those things. So what happened was President Teddy Roosevelt came up and broke up those large
corporations into smaller firms so that they would compete against each other and that increased
competition and it prevented firms from charging higher price so consumers were benefiting

So we have some common laws that discourage cooperation .

The Sherman Antitrust Act of 1890, the first national legislation in the world against monopoly. It did
forbid collusion between competitors. It elevated agreements among oligopolists from an unenforceable
contract to a criminal conspiracy.

Then came Clayton Act of 1914 which basically strengthened the rights of individuals damaged by anti-
competitive arrangements between firms. So both are used to prevent mergers so if any company are too
big and enjoy much market power when they try to merge we’re gonna stop them from merging because
when they merge they will become even bigger and then make the market less competitive.

So This is like a small fun conversation. Can you guess what they were trying to talk about? In those
signs. These two airline executives actually wanted to talk about fixing prices from cooperation with
each other. But painfully the Sherman Antitrust Act even prevented them from doing that. So it was very
strict.

Actually There are a lot controversies over antitrust laws even up till date we can notice the heated
debate over the case of merger between Grab and Uber recently. The economist often argue that antitrust
laws have been used to condemn some business practices whose effects are not obvious. Here we
consider three examples.

The first controversy is resale price maintenance. It requires retailers to charge customers a given price,
let say, at the same or higher price. For ex, we have the supplier of the good T-mobile that they sell each
IPhone XS to retail store like FPT shop, TGDD or Vien thong A for $1000 and retailers cannot sell less
than $1000 this value and it’s actually in real life because the price is almost the same wherever you go
to buy the product. At first, RPM might seem anticompetitive and therefore not good for society because
it prevents the retailers from competing on price. So it is viewed as violation of antitrust laws. But some
economists defend RPM on two grounds. First, they deny that it is not aimed at reducing competition.
They argue that if the wholesaler have the market power, they can apply that power through wholesale
price, let say AT&T, Verizon or Amazon rather than through RPM.

Secondly, they believe that RTM has a legitimate goal. That’s the customer service. The wholesalers
may want its retailers to offer high-quality customer service so they can compete with each other on the
showroom or sales force. If there’s no RTM, the customers may come to FPT Shop to enjoy free
consulting service and then they will buy IP at a discount retailer like TGDD.

Predatory pricing is one company charging prices too low. Again the idea is to drive other company out
of business and then they become the monopoly. Many economists believe that it’s not a profitable
strategy. Because it will cause a price war and drive out the rival’s prices below cost.

The last controversy is about tying. Tying is when you try to make consumers purchase the bundle – two
products together instead of a single product. The company uses it as a way to expand the market power.
But the economists are skeptical about this argument. For ex, you want to buy a small black board and
nothing for a marker and you value it at 30000 vnd but the retailers tie the board and the marker together
at the same price 30000 vnd. In this case forcing customers to buy both products cannot increase their
willingness to pay. So the retailers cannot increase their market power by binding two goods together.