One of the essential components of the American economic system is the promotion of fair competition. To ensure that moneyed or powerful interests don’t wrongfully collude and restrict free enterprise, the United States Congress has, over the past 130 years, enacted a number of “antitrust” statutes, aimed at preventing price fixing, unlawful restraint of trade, and the establishment of monopolies.
An antitrust law is written law, enacted by a legislative body, designed to support and promote free competition and restrict collusion or monopolies. Because most American antitrust law is administered at the federal level, most of the nation’s antitrust laws have been enacted by the United States Congress.
While the first antitrust laws were broadly applied to businesses of all kinds, since the Clayton Act, in 1914, there have been key limitations to the scope of antitrust law.
There’s also one area—the defense industry—where any proposed consolidation, merger, or acquisition is subject to greater scrutiny.
There are three principal pieces of federal legislation that make up the body of American antitrust law:
Enacted in 1890 and named after Senator John Sherman of Ohio, the Sherman Act bans both conduct and contracts that are anticompetitive or that seek to monopolize a specific market. Under the Sherman Act, the United States Department of Justice has the power to file legal action to seek a court order enjoining or prohibiting acts in violation of the statute. The law allows private entities to seek monetary compensation for anticompetitive acts, including treble (i.e., triple) damages. The Sherman Act also allows for the creation of an “innocent monopoly,” based entirely on merit, but bans companies from artificially raising or lowering prices in order to create a monopoly.
Though the Sherman Act bans trusts and cartels, it does not make mergers illegal. Consequently, the quarter of a century between the enactment of the Sherman Act and the passage of the Clayton Act saw an unprecedented number of mergers.
The Clayton Act bans:
Another unintended response to the Sherman Act by corporations was its use to prevent the organization of labor unions. The Clayton Act exempts labor unions from the restrictions imposed by the Sherman Antitrust Act.
Technically an amendment to the Clayton Act, the Robinson-Patman Act, passed by Congress in 1936, focuses on limiting and eliminating anticompetitive price discrimination. The statute mandates that a business charge the same price for its products, regardless of the buyer. The act only applies, however, to “tangible” goods that are similar in quality and are manufactured, fabricated, or assembled at or around the same time. Notable services that are not regulated by Robinson-Patman include internet, cellphone, and cable television services.
Initially, Robinson-Patman was primarily enforced by the federal government. However, in the 1960s, because of pressure from the business community, the federal government ceased all enforcement, leaving it exclusively to private individuals. The Federal Trade Commission sought to revive the statute in the 1980s, but it is rarely enforced in today’s business climate.
There are a number of federal statutes in place to help prevent unfair competition by regulating the creation of monopolies, as well as the use of price-fixing and unlawful restraints. The law allows the federal government to take action to limit unfair competition and allow businesses and private individuals to sue for damages caused by unfair competition.
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