Antitrust
The purpose of antitrust policy is to limit or prevent the creation of monopoly power and to preserve competition by regulating business conduct. The United States was the first country to introduce legislation for that purpose, and has taken the lead in developing its rationale and methods of implementation. In the post-war years its example has been widely followed in Europe and elsewhere
The Antitrust Concept
The term "antitrust" originated from the nineteenth–century practice of placing the stock of a large number of formerly competing companies into the hands of trustees who were then able to exercise a very substantial degree of commercial and political influence. Public indignation at what were perceived as the consequent abuses by "big business" led in 1890 to the passing of legislation that made illegal any attempt to monopolize any part of trade or commerce.
U.S. Supreme Court interpretations of that legislation attributed to it objectives which go beyond the pursuit of economic efficiency. In 1945 Judge Learned Hand attributed to its legislators the desire to put an end to great aggregations of capital because of the helplessness of the individual before them, and in 1962, the Court attributed to Congress the policy of protecting small businesses even at the expense of higher prices. The use of antitrust to attack big business and to protect small firms continued to be a feature of antitrust policy until appointees of the Reagan administration took steps to limit that use of the legislation, following a campaign by economists and lawyers of the Chicago School to make the economic welfare of consumers the sole criterion for antitrust rulings.
The 1890 legislation was at first unworkable because its prohibition was so general as to make criminal offenses of a wide range of well-established and harmless business practices. A Supreme Court ruling in 1911 provided a workable interpretation under which most forms of business behavior could be judged by their effect rather than solely by their form.
Antitrust Law
The Sherman Act of 1908 states that
Every contract, combination in the form of trust … or otherwise, or conspiracy in restraint of ::trade … is hereby declared illegal. … Every person who shall monopolize or attempt to monopolize ::any part of trade or commerce shall be deemed guilty of a felony.
The Sherman Act was supplemented in 1914 by the more specific terms of the Clayton Act. Among practices made unlawful under that act were price discrimination, exclusive dealing, tie-in sales, and interlocking directorates – subject in each case to the condition that the purpose or effect of the practice would be 'substantially to lessen competition'. Section 2, dealing with price discrimination, was amended in 1936 by the Robinson-Patman Act, which made it unlawful to discriminate in price between different purchasers of goods of like grade and quality where the effect would be substantially to lessen competition (unless the price differentials would only compensate for differences in costs of supply). Section 7 of the Clayton Act, as amended in 1950, prohibited mergers which would substantially lessen competition. The Clayton Act and its amendments do not create criminal offenses.
Antitrust law is enforced in the courts and its interpretation is subject to legal precedents, but Supreme Court rulings have from time to time brought about major changes in its application. One of the major changes was the introduction in 1911[1] of the rule of reason, which ruled that only combinations and contracts unreasonably restraining trade are subject to actions under the anti-trust laws and that the possession of size or monopoly power is not illegal per se. A further change was introduced in 1977[2] with the ruling that the resulting gains in efficiency were admissible as a defense of some vertical restraints. Further changes have in effect been introduced by guidelines issued by the Federal Trade Commission and the Department of Justice[3][4].
Enforcement and penalties
A violation of the Sherman Act is a criminal offense, punishable by fines or imprisonment. Injunctions may be granted by the courts to prevent anti-competitive behavior or to require divestiture of parts of a monopoly. Injured parties may bring actions for tripledamages, that is to say three times the amount of the damage actually sustained. Federal responsibility for enforcement of the legislation lies with the Federal Trade Commission [5] and the Department of Justice [6]. Most states also have antitrust laws similar to the federal antitrust laws, but which generally apply to offenses committed within a state's boundary. They are enforced similarly to federal laws through the offices of state's attorneys general.
The Implementation of Antitrust Law
In the first phase of the implementation of the antitrust legislation, priority was given to attempts to break up existing monopolies and prevent the formation of others. In the first major episode, the government stopped the formation of the "Northern Securities Company," which threatened to monopolize transportations in the northwest. In 1911 the Supreme Court upheld a court decision against Standard Oil and broke it into three dozen separate companies that eventually competed with one another, including Standard Oil of New Jersey (later known as Exxon and Exxon-Mobil), Standard Oil of Indiana (Amoco), of New York (Mobil), of California (Chevron), and so on. However, the U.S. Steel Corporation, which was much larger than Standard Oil, used rule of reason arguments in a successful defense against an antitrust suit in 1920. In 1983 the Reagan administration used the Sherman Act to break up AT&T, a nationwide telephone monopoly, into one long-distance company and six regional local service companies. In 1999 a coalition of 19 states and the Department of Justice sued Microsoft over its attempt to remove the competitive threat posed by the Netscape browser, and in 2000 a trial court ordered Microsoft to be split in two; but Microsoft argued successfully on appeal that splitting the company would diminish efficiency and slow the pace of software development. The admissibility by that time of efficiency defenses had made it more difficult to make a successful case for the breaking up of large firms and anti-monopolization measures have since tended to concentrate upon the control of mergers.
Less dramatic but equally important have been efforts to defend competition by monitoring and regulating business practices. The Justice Department has given particular attention to price-fixing, and has obtained price-fixing and bid-rigging convictions in the soft drink, motion picture, trash-hauling, road-building, electrical contracting and dozens of other industries involving hundreds of millions of dollars in commerce. And in recent years, grand juries throughout the U.S. have been investigating possible violations with respect to fax paper, display materials, explosives, plumbing supplies, doors, aluminum extrusions, carpet, bread, and many more products and services. The Justice Department also has recently been investigating and prosecuting bid-rigging in connection with Defense Department and other government procurement.
The regulatory practices that are currently adopted by the Federal Trade Commission and the Department of Justice are described in the article on Competition Policy.