The Federal Trade Commission

What is the Federal Trade Commission?

The Federal Trade Commission has been protecting American consumers for more than the last 100 years.  It was formed on September 26, 1914, with President Woodrow Wilson signing the Federal Trade Commission act into law. However, it opened its doors in 1915.  At the time of its formation, the main aim of the commission was to prevent unfair methods of competition in business. However, with time, the US national congress passed many more laws that gave the commission additional authority to police anticompetitive behavior in business.

Mission, Vision and Strategic Goals of the Federal Trade Commission

Mission Statement of FTC

“Protecting consumers and competition by preventing anticompetitive, deceptive, and unfair business practices through law enforcement, advocacy, and education without unduly burdening legitimate business activity.”

FTC mission statement.

The Federal Trade Commission works to prevent anticompetitive behavior and unfair business practices by enforcing the applicable laws as well as through advocacy and education, However, at the same time, it also aims to not unduly burdening legitimate business activity.

Vision Statement of FTC

A vibrant economy characterized by vigorous competition and consumer access to accurate information.

FTC vision statement.

The FTC aims to create a vibrant economy that experiences vigorous competition and where consumers have access to correct and accurate information. Anticompetitive behavior is against the welfare of the consumers and the economy and FTC seeks to prevent such behavior throughout the US economy in various industry sectors. It enforces necessary laws and also publishes educational material as well as shares its expertise with the legislatures and government agencies. 

FTC’s Strategic Goals

Here are the three strategic goals of FTC.

  1. Protect consumers from unfair and deceptive practices in the marketplace
  2. Maintain competition to promote a marketplace free from anticompetitive mergers, business practices, or public policy outcomes
  3. Advance the FTC’s performance through excellence in managing resources, human capital, and information technology

One leading strategic goal of the Federal Trade Commission is to prevent unfair and deceptive practices that harm American consumers. Several times, American companies may indulge in practices that are anti-competitive or intended to prevent other players in the market from competing with them. Such practices are harmful to consumers as well as society. So, the FTC works to ensure that the American marketplace is free from such activities. Apart from that FTC also works to continuously improve its performance by focusing on managing its resources as well as HR and IT better. There are three bureaus that perform the work of FTC including the Bureau of Competition, Bureau of Competition, and the Bureau of Economics.

Bureau of Competition:

The Bureau of Competition seeks to prevent anticompetitive mergers as well as other anticompetitive business practices in the marketplace. It enforces the antitrust laws to promote competition and to protect the consumers’ interest. It protects the consumers’ freedom of choosing the goods and services at a price and quality that fits their needs. 

Bureau of Consumer Protection:

The Bureau of Consumer Protection protects consumers against fraudulent, deceptive, and unfair practices. It also enforces a large number of consumer protection laws enacted by the Congress apart from the trade regulation rules that the commission has issued. Apart from carrying out individual company and industry-wide investigations, it also carries out administrative and federal court legislation as well as rulemaking proceedings and consumer and business education.  The Bureau also contributes to the FTC’s ongoing efforts to inform the congress and the other government entities about the impact of their proposed actions on the consumers.

Bureau of Economics:

The main task of the Bureau of Economics is to help the FTC evaluate the impact of its actions on the broader economy. To fulfill this task, the Bureau of Economic Analysis as well as support to antitrust and consumer protection investigations and rulemakings. The Bureau of Economics also analyzes how government regulation affects consumers and competition. Apart from that, the Bureau provides Congress, the Executive Branch, and the public with economic analysis of market processes related to antitrust, consumer protection, and regulation.

What is anticompetitive behavior?

Anticompetitive behavior or practices are unfair business practices that are likely to reduce competition or lead to lower quality of products or services as well as less innovation. Such practices include price-fixing, group boycotts, and exclusionary exclusive dealing contracts or trade association rules. These activities are grouped mainly into two categories including:

The FTC generally pursues anticompetitive behavior as violations of section 5 of the Federal Trade Commission Act. This section bans unfair methods of competition as well as unfair or deceptive practices in business.  

Single Firm Conduct:

Some companies can be so successful in the marketplace that their behavior may not remain subject to common competitive pressures. However, it is not an important concern for most businesses in the United States since most markets in the United States support several competing firms. Apart from that, the competitive give and take do not allow a single firm to have a significant influence on the operations of that market.

 According to section 2 of the Sherman Act, it is unlawful for any company to monopolize or attempt to monopolize trade or commerce. However, the law is not as restrictive in nature as it appears because it is not illegal for a company to have achieved a monopolistic position in the US market. It is not illegal earth for a company to charge higher prices or attempt to achieve a monopoly position by what might be seen as aggressive methods by others. 

This law is violated only if the company attempts to maintain or acquire a monopoly through the use of unfair methods. To determine if the methods are reasonable or unreasonable, courts check if the method adopted by a business has a legitimate business justification.

Horizontal Conduct:

The modern industry environment and market are marked by a high level of competition. To compete in such a scenario, competing business organizations may need to come together and collaborate. There are various reasons that competing firms may be required to come together. Sometimes the goal of such collaboration may be foreign expansion, sometimes the funding of costly innovation, and in some cases, the goal of collaboration may be to bring production and other costs lower. There are several ways in which competitors interact in today’s marketplace including through trade associations, professional groups, joint ventures, standard-setting organizations, and other industry groups. Such dealings are generally intended to encourage fair competition. However, there are also certain antitrust risks related to the collaboration between competitors. In many cases, the competitors may collaborate to a degree that they are not acting independently any longer. Or in some cases, coming together makes them stronger and allows them to wield market power together.  There are clear rules prohibiting the most blatant non-competitive agreements. Such agreements include price-fixing, bid-rigging, and market division or customer allocation.  Several years ago, the courts had decided that these are per se violations because these practices are just so illegal and inherently harmful to the consumers. However, in the case of several other dealings between the competitors, there are no clear cut rules. As such, fact-based inquiries need to be conducted into the purpose and effect of the collaboration between the competitors.  The enforcers need to ask two major questions in such a scenario:

  • What is the purpose and effect of the collaboration between the competing firms?
  • Does this collaboration restrict competition or promote business efficiency?