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Competition Laws and Industrial Action - Part IV

Sam Vaknin, Ph.D. - 10/25/2006

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".

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