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The FTC: What It Is, and How It Works

The FTC: What It Is, and How It Works

A Monopoly game piece -

The Federal Trade Commission (FTC) was established by President Woodrow Wilson in 1914. This commission’s initial function was to implement the Clayton Antitrust Act, a law that banned business monopolies. The FTC complemented the efforts of the Bureau of Corporations which was formed in 1903 to align businesses with the interests of the public.

The Federal Trade Commission continues to cushion entrepreneurs and customers from partisan business practices by defining unethical behavior and implementing policies that promote fair competition.

Composition of the FTC

The commission’s leadership comprises five commissioners, chosen and approved by the President and Senate for a seven-year stint. The President then appoints one commissioner as chair. Note that the commission doesn’t choose more than three members from one political party.

Objectives of the FTC

The economy of any nation grows through trade, and the United States is a leader on this front. The broad American market has a wide variety of goods from both domestic and international markets.

This means American citizens encounter numerous products, increasing the risk of unfair market practices.

The FTC’s mission is to safeguard the public from deceptive business conduct and unfair competition through advocacy, research, education, and law enforcement. It also has the vision of a vibrant economy guided by equal opportunities and empowered consumers. 

Functions of the FTC

Here’s what the Federal Trade Commission does:

Consumer Protection

The Federal Trade Commission helps consumers identify and avert different types of market fraud, including scams, false advertisements, and misleading information.

The FTC also investigates any misconduct reported by consumers and takes the necessary action.

Promotes Competition

The FTC is strictly against anticompetition. These are actions by individuals or companies that undermine market competition. Anticompetition builds collaborations that result in low-quality goods and services, high prices, and loss of innovation. Anticompetitive behavior includes:

  • Price Fixing: This is when players within the same market conspire to inflate prices for higher profits. Price fixing can involve direct communication between sellers or signals such as press releases and public statements.  
  • Exclusionary Trade Association Rules: While trade associations can create a fair market through standardization, certification, and accreditation, they can also be a source of anticompetition. For starters, they can stifle competition by introducing stringent membership rules. They can also allocate markets to specific members, creating monopolies in certain geographic locations.
  • Group Boycotts: These are agreements between competitors to avoid a particular company or individual. Boycotts take various forms. For instance, market participants can refuse to buy from a particular business or supply them with raw materials. They can also block certain distribution channels to lock out competitors. 

The FTC has established fundamental competition guidelines, including horizontal merger guidelines and antitrust laws. Moreover, the commission works with the Bureau of Competition and the Department of Justice to find any unlawful mergers.

Economics Function

The commission’s Bureau of Economics (BE) is concerned with how FTC operations and legislations affect the US economy. BE roles include:

  • Providing well-measured and impartial advice about consumer and antitrust protection to the commission and legal staff
  • Updating the public on investigation findings
  • Being a market advocate on national and international levels.

Benefits of the FTC to Consumers

The Federal Trade Commission handles issues that affect every American consumer, including:

Educating Consumers About Their Rights

The FTC provides educates consumers about their rights and responsibilities by providing access to tools and resources. By doing so, it empowers them to take action when their rights are violated.

Ensuring Products Are Low-Priced and High Quality

Competition in the United States depends on selection, service, and price. That’s why the FTC enforces antitrust laws to ensure free and open markets. 

Businesses are more likely to produce high-quality goods at low prices when they have competitors. Additionally, products come in different varieties, exposing consumers to many options.

Investigating Complaints

The FTC investigates consumer complaints and takes action through injunctions, restitutions, and even civil penalties. This way, buyers don’t have to pursue justice by themselves, saving them time and money. Note that the commission’s investigations aren’t public–unless a company reveals its involvement in a case, the FTC cannot disclose the subjects of an inquiry.

The Federal Trade Commission has successfully represented the public in various cases. An example is the AT&T mobile data throttling case, where the company paid $80 million for unlawful third-party charges.

Similarly, Benefytt Technologies, a healthcare insurance company, paid $100 million in refunds for their bogus insurance plans. Benefytt was found guilty of using misleading lead-generation websites to bait unsuspecting consumers.

In Summary

The FTC works to protect consumers and provide them with an avenue to air their grievances. Feel free to visit the consumer information page to know how the FTC safeguards your rights. 

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