About antitrust laws
Antitrust laws were set up by the State to promote fair competition in the market. The laws prevent the creation of monopolies and price fixing. This aids in protecting consumers in the economy. The antitrust laws came to effect in the 1890s.
Antitrust laws are used to determine cases that have a possibility of eliminating business practices. Antitrust laws aim at protecting the consumers from exploitation and protecting the integrity of markets.
Discussion
A scenario where a company receives lower discounts on goods purchased than its competitors may be regarded as an unfair trade practice and it is unethical. In such a scenario, it can be considered that Wal – Mart has an undue advantage over its competitors and is likely to hinder competition. The goal of rival firms is to increase profits, gain market share and increase sales using an appropriate marketing mix.
The pricing adopted by a company shapes the market structure of an industry. For instance, a scenario where Wal – Mart receives trade discounts for purchases while its competitors do not receive the same discount is likely to have an impact on the prices charged by the company.
The company may either charge lower prices than competitors thus driving them out of the market or the company may charge the market price and earn higher profits than competitors. The general effect of discounts is a reduction in cost of sales. This affects returns to scale.
The aim of price discounts should not be considered as eliminating competition only. Discount on prices could be as a result of price discrimination practiced by the suppliers. Price discrimination is an economic practice where a producer charges different prices to different buyers of the product. The product is homogenous across players and the prices do not reflect differences in the quality, cost or quantity of the goods.
For price discrimination to be successful, the buyers of the commodity should be in separate markets. Secondly, the buyers should have different price elasticity of demand. High prices will be charged to consumers who are less responsive to changes in price. Price discrimination is a common practice in many industries and companies use this practice to maximize sales revenue.
Price discrimination has been a contentious issue of discussion especially in scenarios where the practice is abused. For instance, the practice allows a company to exploit consumers by charging some consumers high prices. Secondly, the practice can be exclusionary in the market.
Price discrimination strategy gives rise to predatory pricing. When this practice is carried out by a supplier, it is likely to exclude an extensive part of a market. This in turn will have a significant impact on competition on the market. Assessing the impact of price discrimination is complex since it entails a number of practices such as selective pricing cuts, rebates and discounts.
To determine the impact of price discount, it is important to ascertain if discounts are economically too large. The price discounts would be too large if they have a significant impact on the cost of sales and pricing decision implemented by Wal – Mart Company.
The price discount offered to the company would be economically large if it affects the pricing decision of the company and returns to scale. In such a scenario, the discounts would have an exclusionary effect in the market.