Because free competitive markets are good.  Invisible hand and all that jazz, supply and demand curves, you know the drill.  But what doesn't work all that well are uncompetitive markets, even when they are free.  Libertarians and ultra-conservatives can hope that the market will work itself out in the long term until they go blue in the face, but in the end certain industries are prone to monopolistic behaviour that reduces the natural effectiveness of the competitive market.

Anti-competition laws are needed to protect consumers from the ill intent of monopolistic corporations and try to restore some semblance of a free competitive market.  Free competitive markets are good for consumers because they tend to produce sufficient quantities of products at relatively low profit margins which ends up being really nifty, so we like it when that happens.  When you see long periods of extended high profit margins, then you know that something screwy is going on because in a free competitive market that just shouldn't be.  The invisible hand is fucked up and not working right because the monopolist has handcuffed it to a heater.

Thus, a sane government defines rules that govern what dominant companies can and cannot do, much to the disdain of those dominant companies and the think tanks they fund and the fools they manage to convince along the way.

What's a reason we don't need anti-competition laws?

To protect the companies that the dominant company tries to eliminate or choke the air out of  while abusing the market.  This implies a false "right" that someone has to a particular market which is pretty ridiculous if you think about it.  It's about protecting the consumers, not the companies.

How can it be a monopoly if there are product alternatives?

Monopoly is bad term, unless you are talking about the delightfully fun board game that I usually win when I play.  Only in very rare instances is there actually a true monopoly, and usually those cases are mandated by a government entity.  A better term would be "degree of monopoly power", which talks about how much influence a particular entity has to distort a particular market.  Sometimes people casually say "monopoly" in conversation when they actually mean "company with a high degree of monopoly power" but those people are technically using a wrong term.  So let's skip past that.

Enough vagueness.  How does anti-competitive behaviour really work?

Let's look at one quick example: Disney.  If Disney Corp makes a movie about talking manatees that have a moral tale to tell with a surprise happy ending, they can show it in theatres for $10 a pop and sell the DVD for $30, which on a successful film can net them very high profit margins.  They can do this because they have a legal monopoly on the "selling things that Disney makes" market, which in this case is called copyright.  But of course, this is totally legal anti-competitive behaviour so we'll move on to the more nasty versions.

The all-time classic example of anti-competitive behaviour is of course OPEC, everyone's favourite oil cartel.  The thing about oil, you see, is that while it could be competitive market in theory, unlike toothbrushes you can't just up and decide you want to make oil, you need to have rights to land and much of these are taken up by strategic-thinking governments not profit-driven companies.  The point is, a large percentage of oil production ends up being in the hands of groups of people who aren't willing to sell the land, which ends up forming a distortion of what would otherwise be a free and competitive market.

How this plays out is that a few of these governments notice an opportunity for greater profits and started a cartel called OPEC to collude in regards to production strategy.  Since oil consumption is largely fixed, as we literally fuel our economies on oil, they can bump up prices without causing much of a drop in sales.  In a competitive system they would be pricing themselves out of the market but because of the aforementioned distortion they are able to reap higher profit margins this way.  Consumers get shafted for higher prices, and the corrupt dictatorships in OPEC get rich.  This would be illegal, but of course the collusion takes place in foreign countries so what are you going to do?

But what about Microsoft?  Weren't we talking about Microsoft?

Right, I was just getting to that.  Putting in all those hyperlinks take time, you know. 

Microsoft is a company that managed to secure a very dominant position in the computer industry thanks to some clever work, a lot of luck, and an amazing amount of determination to stay on top.  While they are not a monopoly as some people like to claim (we covered this, no?), they do manage to exert a lot of anti-competitive pressure on the market and it's fair to say that they wield a high degree of monopoly power.  But unlike the previous case of anti-competitive behaviour we went over earlier, Microsoft is not guilty of collusion like OPEN and we're not even complaining about their use of legal copyright either.  No, with Microsoft the compliant is of bundling: let's talk about Internet Explorer, Windows Media Player, and MSN Messenger.

Flashback to the mid/late 90s: Microsoft had just managed to transit their successful DOS products to their new bestseller Windows.  They were, so to speak, on top of the world.  It's hard to believe now but at the time the Internet as we know it did not really exist... and using personal computers meant spreadsheets and Wolfenstein3D not browsing the web for porn.  If you wanted to do stuff on a computer, you had to buy one that ran Windows because that's where the games and programs you wanted to run were.  Microsoft was in a sweet spot, and rolling in the dough.

In any case, an young upstart company called Netscape threatened to change all that.  Leveraging Al Gore's newly created internet, Netscape had the gall to launch a product that threatened the core of Microsoft's profits:  Netscape Navigator.  With the combination of a cross-platform web browser and Sun's cross-platform Java, all of Microsoft's monopoly power could vanish if the underlying operating system became a commodity item and their ">profits would vanish along with their monopoly power.

Microsoft's response: turn the argument on it's head and make the Internet part of it's platform.  They did this by developing a good web browser that competed with Netscape's product, release it for free and bundle it with their computers so that no one needs to download a product from Netscape to browse the web, let alone pay for it.  In order to alleviate the concerns that they are trying to lock people into windows, they produce browsers for Mac, Solaris, HP-UX, Win3.1.  Once they have a good position in the market they Embrace+Extend the standards in a way that other products are not able to compete in -- and further cripple the competition by releasing a version of Java that is so slow and broken that it discourages people from adopting that technology.  Once their position became dominant, they stopped supporting other platforms, and now Windows was required to browse the Internet without frequently encountering broken pages.

Yes, Netscape was harmed in the making of this new monopoly power, but that is incidental to the harm that we are concerned with.  (we covered this, right?) Netscape is (was) just a company -- they are out to make a buck just like Microsoft is.  No, what we are concerned with is the fact that we could have had a commodity market which means high degrees of competition and low prices for the consumer, but instead Microsoft managed to cut off Netscape's air supply and maintain it's death grip on the market -- reaping massive profits at the expense of the rest of the world's pocketbook.

Wow, that was a lot of text.  Are you sure there is another example?

Yes.  Two more examples in fact: Windows Media Player and MS Messenger.  Microsoft bundled these programs with their OS as well which caused a ruckus like when they bundled Internet Explorer.  And again, we see the same pattern emerging: Microsoft bundling with OS to increase market share, supporting other platforms to extend reach and quell monopoly fears.  But what's that?  WMP being pulled from the Mac, is it?  Oh geez louise, who saw that coming?  How long before MS stops allowing non-official clients on non-Windows platforms from accessing their messaging program?  It's all just a matter of time, and these too will become tools to help Microsoft lock customers into their platform.  The bundling is not bad because it hurts Real or AOL (except from their perspective of course), the bundling is bad because if left unchecked the anti-competitive implications could harm consumers as has already been the case with the web browser.

And I didn't even mention Office, did I?  Any guesses from the crowd why Outlook is not available for the Mac?  I think by now you get the freakin' point, eh?

Any final words?

Did you know? With this many hyperlinks, it took 20 minutes to weed out the poorly formatted hrefs.
Did you know? This was really worth staying up all night for.

* May or may not actually be just a few.