Antitrast law

History of antitrust law. The Department of Justice building in Washington, D.C. as home to the United States antitrust enforcers. Federal and state government, private suits. Several examples of antitrust law: AT&T, Alcoa, Kodak and Standard Oil.

Рубрика Государство и право
Вид реферат
Язык английский
Дата добавления 26.06.2012
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The United States antitrust law is a body of laws that prohibits anti-competitive behavior (monopoly) and unfair. Antitrust laws are intended to encourage competition in the marketplace. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both, or generally to violate standards of ethical behavior. Government agencies known as competition regulators, along with private litigants, apply the antitrust and consumer protection laws in hopes of preventing market failure. The term antitrust was originally formulated to combat "corporate trusts," which were big businesses. 2  Other countries use the term "competition law". Many countries including most of the Western have antitrust laws of some form; for example the European Union has provisions under the Treaty to maintain fair competition, as does Australia under its Trade Practices Act 1974.

History of antitrust law

The antitrust laws comprise what the Supreme Court calls a "charter of freedom", designed to protect the core republican values regarding free enterprise in America. 18  One view of the statutory purpose, urged for example by Justice Douglas, was that the goal was not only to protect consumers, but at least as importantly to prohibit the use of power to control the marketplace.

"We have here the problem of bigness. Its lesson should by now have been burned into our memory by Brandeis. The Curse of Bigness shows how size can become a menace--both industrial and social. It can be an industrial menace because it creates gross inequalities against existing or putative competitors. It can be a social menace...In final analysis, size in steel is the measure of the power of a handful of men over our economy...The philosophy of the Sherman Act is that it should not exist...Industrial power should be decentralized. It should be scattered into many hands so that the fortunes of the people will not be dependent on the whim or caprice, the political prejudices, the emotional stability of a few self-appointed men...That is the philosophy and the command of the Sherman Act. It is founded on a theory of hostility to the concentration in private hands of power so great that only a government of the people should have it." Dissenting opinion of Justice Douglas in United States v. Columbia Steel Co.

Although "trust" had a technical legal meaning, the word was commonly used to denote big business, especially a large, growing manufacturing conglomerate of the sort that suddenly emerged in great numbers in the 1880s and 1890s. The Interstate Commerce Act of 1887 began a shift towards federal rather than state regulation of big business.  It was followed by the Sherman Antitrust Act of 1890, the Clayton Antitrust Act and the Federal Trade Commission Act of 1914, the Robinson-Patman Act of 1936, and the Celler-Kefauver Act of 1950.

Indeed, at this time hundreds of small short-line railroads were being bought up and consolidated into giant systems. (Separate laws and policies emerged regarding railroads and financial concerns such as banks and insurance companies.) Advocates of strong antitrust laws argued the American economy to be successful requires free competition and the opportunity for individual Americans to build their own businesses. As Senator John Sherman put it, "If we will not endure a king as a political power we should not endure a king over the production, transportation, and sale of any of the necessaries of life." Congress passed the Sherman Antitrust Act almost unanimously in 1890, and it remains the core of antitrust policy. The Act makes it illegal to try to restrain trade or to form a monopoly. It gives the Justice Department the mandate to go to federal court for orders to stop illegal behavior or to impose remedies.

Public officials during the Progressive Era put passing and enforcing strong antitrust high on their agenda. President Theodore Rooseveltsued 45 companies under the Sherman Act, while William Howard Taft sued 75. In 1902, Roosevelt stopped the formation of theNorthern Securities Company, which threatened to monopolize transportation in the Northwest (see Northern Securities Co. v. United States).

One of the more well known trusts was the Standard Oil Company; John D. Rockefeller in the 1870s and 1880s had used economic threats against competitors and secret rebate deals with railroads to build what was called a monopoly in the oil business, though some minor competitors remained in business. In 1911 the Supreme Court agreed that in recent years (1900-1904) Standard had violated the Sherman Act (see Standard Oil Co. of New Jersey v. United States). It broke the monopoly into three dozen separate companies that competed with one another, including Standard Oil of New Jersey (later known as Exxon and now ExxonMobil), Standard Oil of Indiana (Amoco), Standard Oil Company of New York (Mobil, again, later merged with Exxon to form ExxonMobil), of California (Chevron), and so on. In approving the breakup the Supreme Court added the "rule of reason": not all big companies, and not all monopolies, are evil; and the courts (not the executive branch) are to make that decision. To be harmful, a trust had to somehow damage the economic environment of its competitors.

United States Steel Corporation, which was much larger than Standard Oil, won its antitrust suit in 1920 despite never having delivered the benefits to consumers that Standard Oil did. In fact it lobbied for tariff protection that reduced competition, and so contending that it was one of the "good trusts" that benefited the economy is somewhat doubtful. Likewise International Harvester survived its court test, while other trusts were broken up in tobacco, meatpacking, and bathtub fixtures. Over the years hundreds of executives of competing companies who met together illegally to fix prices went to federal prison.

One problem some perceived with the Sherman Act was that it was not entirely clear what practices were prohibited, leading to businessmen not knowing what they were permitted to do, and government antitrust authorities not sure what business practices they could challenge. In the words of one critic, Isabel Paterson, "As freak legislation, the antitrust laws stand alone. Nobody knows what it is they forbid." In 1914 Congress passed the Clayton Act, which prohibited specific business actions (such as price discrimination anything) if they substantially lessened competition. At the same time Congress established the Federal Trade Commission (FTC), whose legal and business experts could force business to agree to "consent decrees", which provided an alternative mechanism to police antitrust.

American hostility to big business began to decrease after the Progressive Era. For example, Ford Motor Company dominated auto manufacturing, built millions of cheap cars that put America on wheels, and at the same time lowered prices, raised wages, and promoted manufacturing efficiency. Ford became as much of a popular hero as Rockefeller had been a villain. Welfare capitalism made large companies an attractive place to work; new career paths opened up in middle management; local suppliers discovered that big corporations were big purchasers. Talk of trust busting faded away. Under the leadership of Herbert Hoover, the government in the 1920s promoted business cooperation, fostered the creation of self-policing trade associations, and made the FTC an ally of "respectable business".

During the New Deal, likewise, attempts were made to stop cutthroat competition, attempts that appeared very similar to cartelization, which would be illegal under antitrust laws if attempted by someone other than government. The National Industrial Recovery Act (NIRA) was a short-lived program in 1933-35 designed to strengthen trade associations, and raise prices, profits and wages at the same time. The Robinson-Patman Act of 1936 sought to protect local retailers against the onslaught of the more efficient chain stores, by making it illegal to discount prices. To control big business the New Deal policymakers preferred federal and state regulation--controlling the rates and telephone services provided by American Telephone & Telegraph Company (AT&T), for example--and by building up countervailing power in the form of labor unions.

By the 1970s fears of "cutthroat" competition had been displaced by confidence that a fully competitive marketplace produced fair returns to everyone. The fear was that monopoly made for higher prices, less production, inefficiency and less prosperity for all. As unions faded in strength, the government paid much more attention to the damages that unfair competition could cause to consumers, especially in terms of higher prices, poorer service, and restricted choice. In 1982 the Reagan administration used the Sherman Act to break up AT&T into one long-distance company and seven regional "Baby Bells", arguing that competition should replace monopoly for the benefit of consumers and the economy as a whole. The pace of business takeovers quickened in the 1990s, but whenever one large corporation sought to acquire another, it first had to obtain the approval of either the FTC or the Justice Department. Often the government demanded that certain subsidiaries be sold so that the new company would not monopolize a particular geographical market.

In 1999 a coalition of 19 states and the federal Justice Department sued Microsoft. A highly publicized trial found that Microsoft had strong-armed many companies in an attempt to prevent competition from the Netscape browser. In 2000 the trial court ordered Microsoft split in two to punish it, and prevent it from future misbehavior, however the Court of Appeals reversed the decision, removed the judge from the case for improperly discussing the case while it was still pending with the media. With the case in front of a new judge, Microsoft and the government settled, with the government dropping the case in return for Microsoft agreeing to cease many of the practices the government challenged. In his defense, CEO Bill Gates argued that Microsoft always worked on behalf of the consumer and that splitting the company would diminish efficiency and slow the pace of software development.


The Department of Justice building in Washington, D.C. is home to the United Statesantitrust enforcers.

In the United States, there are both state and federal antitrust laws. Enforcement of these laws takes three forms:

Federal government

The federal government, via both the Antitrust Division of the United States Department of Justice and the Federal Trade Commission, can bring civil lawsuits enforcing the laws. The United States Department of Justice alone may bring criminal antitrust suits under federal antitrust laws Perhaps the most famous antitrust enforcement actions brought by the federal government were the break-up of AT&T's local telephone service monopoly in the early 1980s  and its actions againstMicrosoft in the late 1990s.

Additionally, the federal government also reviews potential mergers to attempt to preventmarket concentration. As outlined by the Hart-Scott-Rodino Antitrust Improvements Act, larger companies attempting to merge must first notify the Federal Trade Commission and the Department of Justice's Antitrust Division prior to consummating a merger.  These agencies then review the proposed merger first by defining what the market is and then determining the market concentration using the Herfindahl-Hirschman Index (HHI) and each company's market share.  The government looks to avoid allowing a company to develop market power, which if left unchecked could lead to monopoly power.

State governments

State attorneys general may file suits to enforce both state and federal antitrust laws.

Private suits

Private civil suits may be brought, in both state and federal court, against violators of state and federal antitrust law. Federal antitrust laws, as well as most state laws, provide for triple damages against antitrust violators in order to encourage private lawsuit enforcement of antitrust law. Thus, if a company is sued for monopolizing a market and the jury concludes the conduct resulted in consumers' being overcharged $200,000, that amount will automatically be tripled, so the injured consumers will receive $600,000. The United States Supreme Court summarized why Congress authorized private antitrust lawsuits in the case Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 262 (1972):

Every violation of the antitrust laws is a blow to the free-enterprise system envisaged by Congress. This system depends on strong competition for its health and vigor, and strong competition depends, in turn, on compliance with antitrust legislation. In enacting these laws, Congress had many means at its disposal to penalize violators. It could have, for example, required violators to compensate federal, state, and local governments for the estimated damage to their respective economies caused by the violations. But, this remedy was not selected. Instead, Congress chose to permit all persons to sue to recover three times their actual damages every time they were injured in their business or property by an antitrust violation. By offering potential litigants the prospect of a recovery in three times the amount of their damages, Congress encouraged these persons to serve as "private attorneys general."

Exemptions to the antitrust law

antitrust law enforcer government

The antitrust laws include several exemptions to their enforcement. These include labor unions, agricultural cooperatives, and banks.

Mergers and joint agreements of professional football, hockey, baseball, and basketball leagues are exempt. Both the National Football League and Major League Baseball have specific exemptions (see Federal Baseball Club v. National League and the AFL-NFL merger). The NFL's was in exchange for certain conditions, such as not directly competing with college or high school football. However, the 2010 Supreme Court ruling in American Needle Inc. v. NFL established the NFL as a "cartel" of 32 independent businesses subject to antitrust law, not a single entity.

Newspapers under joint operating agreements are also allowed limited antitrust immunity under the Newspaper Preservation Act of 1970.  Insurance is allowed limited antitrust exemptions as provided by the McCarran-Ferguson Act, 15 U.S.C. § 1011, et seq.

The government may grant monopolies in certain industries such as utilities and infrastructure where multiple players are seen as unfeasible or impractical.

Antitrust laws do not prevent companies from using the legal system or political process to attempt to reduce competition. Most of these activities are considered legal under the Noerr-Pennington doctrine. Also, regulations by states may be immune under the Parker immunity doctrine.

Examples of antitrust law

I would like to discuss few major antitrust cases - AT&T, Kodak & Standard Oil - and the effects they had on US antitrust regulation.


The breakup of AT&T is a decision that has made impact on the everyday life of Americans. Challenged as a monopoly through the years by potential entrants into the telecommunications industry, AT&T was granted a “natural monopoly” status by the U.S. Government for years. In 1974, Attorney General Willam Saxbe filed suit against AT&T. Seven years and four Attorney Generals would pass before AT&T and the Department of Justice would enter into a stipulation settling the case between the two parties. AT&T would be split into seven companies, each of which would serve different regions of the United States. Today, of the seven Regional Bell Operating Companies (“Baby Bells) that were formed, three are left - five have merged to become AT&T Incorporated, and the latter three are now known as Verizon and Qwest. The break-up of AT&T and the merger of the Baby Bells have opened up lingering questions and doubts about the effectiveness and practicality of past, present, and future antitrust enforcement.


In 1907, the Aluminum Company of America was founded. Formed on the foundation of a new industry, with protective patents in hand it soon found itself in a position of what it claimed to be was a “natural” monopoly. For years Alcoa was the one and only producer of aluminum in the United States. As part of its' plan to keep that position, Alcoa began taking a series of steps that would allow it to remain dominant: First, it acquired exclusive rights to all of the bauxite mines in the United States. (Bauxite is the base material from which aluminum is refined). It then acquired land rights to build and own hydroelectric facilities in both the U.S. and Canada. By owning both the base materials and the only sites where refinement could take place all other entrants into aluminum market would be effectively barred. Alcoa would go on to create subsidiaries and other aluminum producing companies, such as Alcan, which would become the Canadian equivalent of Alcoa, and a major independent company. Not unnoticed by the Federal Government, in 1937 the Department of Justice would file suit against Alcoa. The suit would drag on until in 1944 Judge Learned Hand would write that in his landmark opinion that Congress did not “condone good trusts and condemn bad ones, it forbad all”. Whether or not Alcoa had attained monopoly status through a lawfully granted patent or offered good public benefit was relevant; what was relevant was the fact that under the Sherman Act, Hand had found evidence that Alcoa had taken measures to restrict trade and enter into monopoly. Though Alcoa was never technically divested and broken as Standard Oil was due to the emergence of competitors Reynolds and Kaiser following World War II, today Reynolds has been acquired by Alcoa. And Alcan, the subsidiary company founded by Alcoa, was the target of a failed takeover bid in 2007 by Alcoa. The history of Alcoa and the current status of aluminum-producing companies today points out a key history lesson: under antitrust code, the Department of Justice can and will go after companies that lead to anticompetitive practices: intentional or not, for either good or ill.


At one point in history, Kodak has controlled as much as 96% of the film and camera market in the United States. Through the years, Kodak has seen and weathered several antitrust suits and claims brought by both private and federal parties. The two suits that would shape and reinforce antitrust law in the United States were brought on by the U.S. Government In 1921 and in 1954 and would result in two consent decrees. In accordance with the 1921 decree, Kodak agreed to not sell private-label film - it was disbarred from selling film under any other label but it's own. In 1954, following the development of its' Kodacolor film, Kodak's became not only the only manufacturer and seller of Kodacolor, it was also the only company that knew how to process the film as well - and parlayed that into its' business strategy. As part of the purchase cost of Kodacolor, Kodak included a fee that would allow the customer to send in the film for processing and delivery. Accused that the “tying” together of the film and the finished product constituted a violation of the Sherman Act, Kodak was forced to license the color finishing process to third parties. In 1994, citing changing international economic conditions, both consent decrees were terminated.

Standard Oil

The case of Standard Oil v. U.S., is a major one in antitrust case law for two simple reasons. First, it broke up a massively profitable and innovative corporation into 34 separate, competing companies. Secondly, the application and upholding of the Sherman Act by the Supreme Court created the vital precedent for all future cases to be prosecuted under. The Standard Oil verdict may have acted as an impetus for the drafting and creation of the Clayton Anti-Trust Act, which is seen by many as a vast improvement and refinement of U.S. antitrust law. (The Clayton Act is ten times larger than the Sherman Act in length!). Today, ExxonMobil can trace its' existence as a direct descendant of Standard Oil, having merged with multiple Standard Oil descendants to become one the largest and richest corporations in the world. In the 2007 fiscal year, ExxonMobil reported an income of 40 billion USD.


Legislation enacted by the federal and various state governments to regulate trade and commerce by preventing unlawful restraints, price-fixing, and monopolies, to promote competition, and to encourage the production of quality goods and services at the lowest prices, with the primary goal of safeguarding public welfare by ensuring that consumer demands will be met by the manufacture and sale of goods at reasonable prices.

Antitrust law seeks to make businesses compete fairly. It has had a serious effect on business practices and the organization of U.S. industry. Premised on the belief that free trade benefits the economy, businesses, and consumers alike, the law forbids several types of restraint of trade and monopolization. These fall into four main areas: agreements between competitors, contractual arrangements between sellers and buyers, the pursuit or maintenance of monopoly power, and mergers. Anti-trust laws prohibit agreements in restraint of trade, monopolization and attempted monopolization, anticompetitive mergers and tie-in schemes, and, in some circumstances, price discrimination in the sale of commodities.

Efficiency-oriented economists reject the goal of competition and instead argue that antitrust legislation should be changed to primarily benefit consumers. No Congress or administration has supported this position. These economists largely ignore the political issues that motivated the laws in the first place.

Anti-competitive agreements among competitors, such as price fixing and customer and market allocation agreements, are typical types of restraints of trade proscribed by the antitrust laws. These type of conspiracies are considered pernicious to competition and are generally proscribed outright by the antitrust laws. Resale price maintenance by manufacturers is another form of agreement in restraint of people working together. Other agreements that may have an impact on competition are generally evaluated using a balancing test, under which legality depends on the overall effect of the agreement.

Monopolization and attempted monopolization are offenses that may be committed by an individual firm, even without an agreement with any other enterprise. Unreasonable exclusionary practices that serve to entrench or create monopoly power can therefore be unlawful. Allegations of predatory pricing by large companies can be the basis for a monopolization claim, but it is difficult to establish the required elements of proof. Large companies with huge cash reserves and large lines of car  can stifle competition by engaging inpredatory pricing; that is, by selling their products and services at a loss for a time, in order to force their smaller competitors out of business. With no competition, they are then free to consolidate control of the industry and charge whatever prices they wish. At this point, there is also little motivation for investing in further technological research, since there are no competitors left to gain an advantage over.

High barriers to entry such as large upfront investment, notably named sunk costs, requirements in infrastructure and exclusive agreements with distributors, customers, and wholesalers ensure that it will be difficult for any new competitors to enter the market, and that if any do, the trust will have ample advance warning and time in which to either buy the competitor out, or engage in its own research and return to predatory pricing long enough to force the competitor out of business.

From an economics perspective, the relatively recent industrial organization research has focused on construction of microeconomic models that predict and/or explain the prevalence of imperfectly competitive markets and deviations from competitive behavior, partly as a response to the criticisms of antitrust laws and policies by the Chicago School and by members of the law and economics school of thought.

Informational sources





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