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The Sherman Act
The Sherman Act
The Sherman Act
There are three main harmful methods of limiting competition: colluding with rivals in a
market, merging with rivals or potential rivals, and using anticompetitive techniques to
exclude existing or potential entrants.
U.S. antitrust laws are designed to prevent these behaviors by making price-fixing, bid-
rigging, and similar behavior illegal, requiring government review of mergers to prevent
those that lessen competition, and prohibiting anticompetitive conduct by an incumbent
with market power that tends to exclude entrants and rivals.
Antitrust laws are acts adopted by the U.S. Congress to restrict unfair or monopolistic
trade practices. The laws all share the same basic objective – to ensure free trade and a
competitive economy by preventing price fixing and unlawful restraint of trade; and to
encourage healthy competition and improved market efficiency. The primary U.S.
Antitrust Acts include:
The Sherman Antitrust Act of 1890: The first major legislation passed by Congress
to address the oppressive business practices of the late 1800s. The Sherman Antitrust
Act and its amendments form the foundation for most federal and state antitrust
legislation. It provides that no person shall monopolize, attempt to monopolize or
conspire with another to monopolize interstate or foreign trade commerce, regardless of
the type of business entity.
Standard Oil Company of New Jersey v. USA
The Clayton Act of 1914: An amendment to clarify and supplement The Sherman Act
as well as provide stronger enforcement capabilities. The Clayton Act was the first
federal statute expressly prohibiting certain forms of price discrimination.
The Federal Trade Commission Act of 1914: Created the Federal Trade
Commission and initially authorized it to issue "cease and desist" orders to large
corporations in order to curb unfair trade practices. Today, all federal Antitrust Laws are
enforced by the Federal Trade Commission and the Antitrust Division of the Department
of Justice.
The Robinson-Patman Act of 1936: Amended the statutes within the Clayton Act
that related to price discrimination. Specifically, it prohibits a seller of commodities from
selling comparable goods to different buyers at different prices (with certain exceptions).
The Celler-Kefauver Act of 1950: Called by some "The Antimerger Act", it reformed
and strengthened the Clayton Antitrust Act by prohibiting buying up a competitor’s
assets if the result of that activity was reduced competition.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976: Required that
companies planning large mergers or acquisitions to notify the government of their
plans in advance and established the Premerger Notification Program.
All Statutes Administered by the FTC: "Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005", "College Scholarship Fraud Prevention Act of 2000", and
"Identity Theft Assumption and Deterrence Act of 1998", to name a few.
16 CFR: Title 16 of the Code of Federal Regulations (CFR) encompasses the Federal
Trade Commission rules and regulations
Federal Register Notices: Federal Trade Commission's regulatory notices
Trust - where one person holds property for the benefit of another
In the late 19th century the word was commonly used to denote big business, because
that legal instrument was frequently used to effect a combination of companies. Large
manufacturing conglomerates emerged in great numbers in the 1880s and 1890s, and
were perceived to have excessive economic power.
Technically, a trust is a legal device used to coordinate multiple property owners
through a unified management structure.
Business owners combine their interests into a single legal entity—the trust. The various
owners appoint a trustee (or multiple trustees) to act in the interest of the collective
owners, and the individual owners retain dividend shares in the trust.
A trust can be established within a single firm—a form known as a voting trust—to unite
majority shareholders for the purpose of controlling management decisions.
Alternatively, a trust can be set up to coordinate multiple, separately owned firms,
operating like a combination or cartel.
The use of trusts for industrial consolidation multiplied throughout the 1880s, and in
response, several states and the federal government passed antitrust laws to regulate
business competition, focusing on coordination among firms and business tactics used to
monopolize industries.
In the late nineteenth-century competition policy developed to counterbalance
concentrated economic power, which reformers feared might be wielded to influence
political outcomes or trammel independent proprietors with unfair business tactics.
Ensuring market competition had once been the province of judges through their
enforcement of common law prohibitions against “restraints of trade,” as well as state
corporation laws regulating business actions and internal governance. However, as new
communication and transportation technologies facilitated business combinations that
traversed state lines, state laws appeared increasingly inadequate. States retained their
regulatory power over corporations, but the Sherman Antitrust Act of 1890 promised to
“rein in the trusts” through federal prosecutions.
Over the next century, observers often asserted that the Sherman Act provided
inadequate relief against anticompetitive behaviors, and consequently, amendments to
the antitrust laws followed. Progressive Era state building contributed to the formation
of the Federal Trade Commission in 1914 and the passage of new laws against unfair
competition that dictated industry-specific rules and regulations to govern trade
practices. In response to the economic depression of the 1930s, President Franklin D.
Roosevelt’s administration experimented with state-sanctioned cartelization of the
national economy. The failure of those policies to stem the Great Depression led to their
reversal by the late 1930s, encouraging some historians to declare the “end of reform”;
however, antitrust regulation and enforcement did not disappear from political debate or
court dockets.
Perhaps the most significant change in antitrust jurisprudence occurred in the 1970s
when stringent antitrust enforcement triggered a backlash that transformed law and
policy. In an attempt to remove progressive or populist political preferences from
antitrust legal analysis, new economic thinking associated with the Chicago school of law
and economics argued that maximizing consumer welfare should be the sole goal of
antitrust law. As a result, many business practices once considered anticompetitive
became legal. The applications of antitrust law narrowed, and the judiciary became less
interventionist in policing market transactions. Contemporary US competition policy is
generally explained as the attempt to maximize consumer welfare—or put differently,
the attempt to get the greatest number of goods to customers, reliably, at the lowest
cost. The older concerns with safeguarding against undue political influence or
preserving a high threshold of market competitors has largely disappeared.
Over the past few decades, these laws have not been operating in a way that generates
and preserves vigorous competition in U.S. markets.
Evidence that antitrust laws are falling short is plentiful. Many cartels go undiscovered,
and tacit collusion is probably even more prevalent because it is harder for antitrust
enforcers to prosecute and deter.
Anticompetitive horizontal mergers (between rivals) appear to be underdeterred. A
variety of clever strategies used by incumbents to exclude entrants, either by purchasing
them when they are nascent or using tactics to confine them to a less threatening niche
or forcing them to exit have been successfully deployed in recent years, often when
antitrust enforcement is late or absent.
U.S. antitrustlaws need to be strengthened, particularly in the area of mergers and
exclusionary conduct, and a new digital regulatory authority that would enforce privacy
laws and create conditions conducive to competition would improve outcomes in digital
markets.
Antitrust, observed the historian, once was the subject of a progressive movement in the
U.S. that stirred public agitation and imagination, despite few antitrust prosecutions.
By the 1960s, there were many antitrust prosecutions (by both Democratic and Republican
administrations), but without any antitrust movement. Fifty years later, the U.S. has neither
an antitrust movement nor much enforcement. That needs to change.
1900–1920. After initial administrative neglect and judicial hostility, this era ushered in the
promise of antitrust with the breakup of Standard Oil and the enactment of the Clayton
and Federal Trade Commission Acts to prevent the formation of trusts and monopolies.
1920s–1930s. Antitrust activity was rare since administrations generally preferred
industry-government cooperation (and, during the early New Deal, economic planning
and industry codes of fair competition), over robust antitrust enforcement.
1940s–late-1970s. Antitrust came to represent the Magna Carta of free enterprise – it was
seen as the key to preserving economic and political freedom.
Late-1970s–mid-2010s. Antitrust contracted under the Chicago and post-Chicago Schools’
neoclassical economic theories.
Established FTC as the enforcement mechanism under competition law along with the
US Justice Dept.
Supplements both the previous legislations
Outlaws unfair activities and practices affecting trade
Violations under the above Acts will also violate FTC Act
Power of cease and desist given to commission