Problem

Restrictive business practices


Experimental visualization of narrower problems
Other Names:
Distortion of international trade by restrictive business practices
Nature:

"Restrictive business practice" means action or behaviour by an enterprise which, through abuse – or acquisition and abuse – of a dominant position of market power, limits access to markets or otherwise unduly restrains competition; this leading or being likely to lead to adverse effects on international trade, particularly that of developing countries, and on the economic development of these countries. It also refers to formal, informal, written or unwritten agreements or arrangements among enterprises which have the same impact. Such practices are used in order to achieve high profits, at the expense of consumers, without being exposed to competition.

Horizontal restrictive business practices include cartel agreements, where existing competitors fix prices and divide markets among themselves, are one form of such practices. There exist different types of cartels (domestic, import, export, international), but in all such agreements, there is the possibility of collusive tendering (also called bid-rigging) where cartel members can eliminate or distort competition.

Vertical restrictive business practices, involving exploitation of a dominant position, include, for example, refusals to deal, exclusive dealing, resale price maintenance (where the manufacturer fixes the resale price), tied selling (where the manufacturer focuses the consumer, the reseller or wholesaler to purchase more goods than are wanted), differential and predatory pricing (where the manufacturer sells the same goods or services at different prices to different customers, or sells goods at a loss until a competitor goes bankrupt), abusive mergers and take-overs (when used to create a monopoly or dominant position). Such practices may reduce the beneficial effects of imports, notably though abusive exercises of intellectual property rights, or pricing abuses by foreign exporters.

Although there is legislation in several countries to control restrictive business practices, in practice these apply to trade and transactions having effects on the domestic market and seldom to international trade when the adverse effects are felt abroad exclusively.

Incidence:

Governments increasingly recognize that their country's position in world production, marketing and distribution depends on the strength of their national "champion enterprises". Thus protectionism tends to shift from the old-style trade barriers to the more direct enhancement of national champion enterprises in the wake of international competition. At the international level this means that governments tend to ignore rules controlling restrictive business practices which they apply to situations affecting their domestic markets. What is good for the national champions is seen as good for the national interest. In the name of competition, enterprises are encouraged to use all the restrictive practices at their disposal in order to strengthen their positions in international trade transactions. In cases where domestic legislation is unable to deal with restrictive business practices originating abroad, there is a need for fair and equitable rules at the multilateral level.

Problem Type:
C: Cross-sectoral problems
Related UN Sustainable Development Goals:
GOAL 8: Decent Work and Economic GrowthGOAL 9: Industry, Innovation and InfrastructureGOAL 12: Responsible Consumption and Production
Date of last update
10.07.2019 – 20:37 CEST