Understandable Economics by Howard Yaruss

Author:Howard Yaruss
Language: eng
Format: epub
Publisher: Prometheus
Published: 2022-06-06T00:00:00+00:00

PROMOTING COMPETITION

What can be done to promote competition and prevent power from being consolidated? The first step is to recognize that many of the government’s own laws and policies create or exacerbate these trends.

A few of these laws intentionally and explicitly set up monopolies in order to prevent competition. For example, the government grants patents on products, such as pharmaceuticals, which give the owner of the patent a monopoly on selling that product. It grants copyrights on intellectual property, such as computer software, which give the owner a monopoly on licensing that product for others to use or enjoy. The justification for these monopolies is that we would have many fewer new inventions or products if developers were not granted a period of time where they would be the exclusive seller of what they developed. That’s the only way they can be guaranteed a return on the huge amount of time and money needed to invent and create new things.

Nevertheless, with regard to certain types of new products, particularly important new drugs, some restrictions on pricing seem reasonable. Patents should incent companies to develop new drugs by allowing them to charge prices that enable them to recoup the significant development costs and earn decent profits. Patents should not allow prices that enable them to earn outsize profits by taking advantage of people’s medical needs.

Unlike laws that intentionally create monopolies in order to encourage innovation, many laws that tilt the playing field in favor of larger, richer companies have little justification. Hypercomplex regulations, excessive licensing requirements, and convoluted tax laws that are routinely addressed by a large company’s legal department can put a smaller company with a small or, in many cases, nonexistent legal department at a significant disadvantage.

Furthermore, our legal system gives large companies with deep pockets the ability to flood not only their competitors, but also anyone potentially standing in their way, with costly litigation. The “American Rule” regarding legal fees provides that, in general, each party in a court case pays their own legal fees. Therefore, lawsuits are a particularly useful tactic for large companies that can access staff lawyers to sue smaller companies that often need to hire expensive outside law firms to defend them. Even if the party being sued gets the case against them dismissed or ultimately wins the case, they’re still stuck with the legal expense of establishing they did nothing wrong. I once overheard someone asking a staff lawyer for a large company that was particularly aggressive in suing its competitors whether their job was stressful. The lawyer responded by saying, “I don’t get stress. I give stress.”

Clearly, many elected representatives give lip service to the virtues of small business and often affectionately refer to them as “mom and pops.” Additionally, the federal government’s Small Business Administration “provides counseling, capital, and contracting expertise as the nation’s only go-to resource and voice for small businesses.”3 Most local governments have a similar division that aims to help small business. Nevertheless, many of the laws and

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