Antitrust

Definition: Antitrust law is a government regulation that limits competition in a particular area by requiring a certain amount of investment or investment-related risk to be passed along to consumers.

Antitrust laws are designed to protect consumers. They prevent large firms from using their power (or economic influence) to restrict or limit competition unfairly. The purpose is to create an economy where consumers have plenty of choices while large firms focus on quality products and services at competitive prices.

Many industries dominate the market because they have become too profitable. Large companies can use their dominance to charge unfairly high prices or dominate consumer demand through shoddy products and price control measures. The government can use its power to break up large corporations if they fail to serve the public interest or if their prices aren’t reasonable.

Ant-monopoly laws aim to limit prices and raise the quality of services and products that consumers experience. Monopolies can abuse their power by limiting competition or engaging in anti-competitive conduct to gain an unfair advantage over other businesses.

There are two major types of anti-monopoly laws

  • The first is the Sherman Act, passed in 1890. It establishes the legal framework for preventing businesses from conspiring to fix prices or stop deliveries. The Sherman Act primarily deals with monopolies. It also contains many anti-competitive provisions that restrict or prevent mergers and acquisitions between firms in different industries unless they were allowed by state or federal law.
  • The second is the Federal Trade Commission Act, passed in 1932. It created the nation’s first consumer protection agency, the Food and Drug Administration. These laws cover several different subjects, including consumer protection, advertising, business practices, internal mergers and acquisitions, and government regulations on prices and materials that businesses may purchase from one another.
  • The Clayton Act also passed in 1914 restricts acquisitions of distinct companies that would result in a concentration of economic power in one company or industry. Still, it has been interpreted to permit some counter-cyclical economic activity.

Antitrust is the fundamental principle that no company may use its power or authority over a competitor to restrain or control competition or aid or promote its interests.  In a nutshell, an anti-competition law prevents two or more firms from using their economic power to punish or deter other firms from competing fairly. This principle applies in most business areas, but it is particularly significant where consumers purchase products and services.

Antitrust laws prevent businesses from conspiring to fix prices or drive out competitors. Anybody breaking the law can be fined or sent to prison for some time. Even so, anti-competitive conduct can take many forms. Practically, it is often difficult to prove a business’s intent to harm competitors. Therefore, in practice, the government will focus on anti-competitive effects assessing each conduct on its facts and its overall economic impact on competition.