What Is Antitrust?
Antitrust laws are regulations that encourage competition by limiting the market power of any particular firm. This often involves ensuring that mergers and acquisitions don’t overly concentrate market power or form monopolies, as well as breaking up firms that have become monopolies.
Antitrust laws also prevent multiple firms from colluding or forming a cartel to limit competition through practices such as price fixing. Due to the complexity of deciding what practices will limit competition, antitrust law has become a distinct legal specialization.
Key Takeaways
- Antitrust laws were designed to protect and promote competition within all sectors of the economy.
- The Sherman Act, the Federal Trade Commission Act, and the Clayton Act are the three pivotal laws in the history of antitrust regulation.
- Today, the Federal Trade Commission, sometimes in conjunction with the Department of Justice, is tasked with enforcing federal antitrust laws.
Understanding Antitrust
Antitrust laws are the broad group of state and federal laws that are designed to make sure businesses are competing fairly. The “trust” in antitrust refers to a group of businesses that team up or form a monopoly in order to dictate pricing in a particular market.
Supporters say antitrust laws are necessary and that competition among sellers gives consumers lower prices, higher-quality products and services, more choices, and greater innovation. Most people agree with this concept and the benefits of an open marketplace, although there are some who claim that allowing businesses to compete as they see fit would ultimately give consumers the best prices.
The Antitrust Laws
The Sherman Act, the Federal Trade Commission Act, and the Clayton Act are the key laws that set the groundwork for antitrust regulation. Predating the Sherman Act, The Interstate Commerce Act was also beneficial in establishing antitrust regulations, although it was less influential than some of the others.
Congress passed the Interstate Commerce Act in 1887 in response to growing public demand that railroads be regulated. Among other requirements, the act ordered railroads to charge a fair fee to travelers and post those fees publicly. It was the first example of antitrust law but was less influential than the Sherman Act, passed in 1890.
The Sherman Act outlawed contracts and conspiracies restraining trade and/or monopolizing industries in an attempt to stop competing individuals or businesses fixing prices, dividing markets, or attempting to rig bids. The Sherman Act laid out specific penalties and fines for violating the terms.
In 1914, Congress passed the Federal Trade Commission Act, banning unfair competition methods and deceptive acts or practices. The Clayton Act was also passed in 1914, addressing specific practices the Sherman Act does not ban. For example, the Clayton Act prohibits appointing the same person to make business decisions for competing corporations.
The antitrust laws describe unlawful mergers and business practices in general terms, leaving courts to decide which ones are illegal based on the specifics of each case.
Special Considerations
The Federal Trade Commission (FTC) and the Department of Justice (DOJ) are tasked with enforcing federal antitrust laws. In some cases, these two authorities may also work with other regulatory agencies to ensure that certain mergers fit the public interest.
The FTC mainly focuses on segments of the economy where consumer spending is high, including healthcare, drugs, food, energy, technology, and anything related to digital communications. Factors that could spark an FTC investigation include pre-merger notification filings, certain consumer or business correspondence, Congressional inquiries, or articles on consumer or economic subjects.
If the FTC thinks that a law has been violated, the agency will try to stop the questionable practices or find a resolution to the anti-competitive portion of, say, a proposed merger between two competitors. If no resolution is found, the FTC may put out an administrative complaint and/or pursue injunctive relief in federal court.
The FTC might also refer evidence of criminal antitrust violations to the DOJ. The DOJ has the power to impose criminal sanctions and holds sole antitrust jurisdiction in certain sectors, such as telecommunications, banks, railroads, and airlines.
Antitrust Law Violation Example
In early 2014, Google proposed an antitrust settlement with the European Commission. Google said it would display results from at least three competitors each time it showed results for specialized searches related to products, restaurants, and travel. Competitors, in turn, would be liable to pay Google each time someone clicked on specific types of results shown next to Google’s results, with the search engine picking up the bill for an independent monitor to oversee the process.
The proposal stipulated that content providers like Yelp could opt to remove their content from Google’s specialized search services without facing penalties. The search giant also suggested removing conditions making it difficult for advertisers to move their campaigns to competitors’ sites; sites using Google’s search tool could have shown ads from other services. The proposal ultimately was not accepted.
On Oct. 20, 2020, the U.S. Dept. of Justice filed an antitrust lawsuit against Google for anti-competitive practices related to its alleged dominance in search advertising.
What Are Antitrust Laws and Are They Necessary?
Antitrust laws were implemented to prevent companies from getting greedy and abusing their power. Without these regulations in place, many politicians fear that big businesses would gobble up the smaller ones. This would result in less competition and fewer choices for consumers, potentially leading to higher prices, lower quality, and less innovation, among other things.
How Many Antitrust Laws Are There?
There are three federal antitrust laws in effect today. They are the Sherman Act, the Federal Trade Commission Act, and the Clayton Act.
Who Enforces Antitrust Laws?
The Federal Trade Commission and the U.S. Department of Justice are responsible for making sure that antitrust laws are abided by. The former mainly focuses on segments of the economy where consumer spending is high, while the latter holds sole antitrust jurisdiction in sectors such as telecommunications, banks, railroads, and airlines and has the power
to impose criminal sanctions.