Insider's experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our our partners, however, our opinions are our own. Terms apply to offers listed on this page. Show The US economy is based on a free enterprise system where the markets, not the government, determine prices. For this system to function properly, there must be competition. "The fundamental purpose of our antitrust laws is to preserve competition and prevent markets from being monopolized," says George A. Hay, Charles Frank Reavis Sr. Professor of Law and professor of economics at the Cornell Law School. "If we had widespread monopoly our economy would be much worse off." The first of those antitrust laws is the Sherman Antitrust Act, enacted in 1890.
The Sherman Antitrust Act was intended to "preserve free and unfettered competition as the rule of trade" for the benefit of consumers. It made monopolization and other contracts that unreasonably restrain trade illegal. It is one of three core federal antitrust laws, along with the Clayton Antitrust Act and the Federal Trade Commission Act. The Sherman Act was named for Sen. John Sherman of Ohio, who was considered an expert on regulating commerce. It was signed into law by President Benjamin Harrison on July 2, 1890. Some states had already passed similar laws, but their scope was limited to intrastate business, whereas the Sherman Antitrust Act was applied across the nation. There are three main parts of the Sherman Act:
"The most important application of section one is to make price-fixing agreements between or among competing sellers unlawful," Hay says. "While price fixing does not create monopoly — literally a single seller — it results in prices that a monopolist would charge, prices much higher than would prevail under competition." The second section makes it unlawful to monopolize a part of commerce. "Basically it covers situations where large firms try to drive smaller competitors out of the market by various anticompetitive tactics, such as pricing below cost," Hay says. There are other practices some people may think are innocent that actually violate the Sherman Act, says Mark Grady, a UCLA law professor. These include "protests against low wages by people who are ineligible for union membership." The Federal Trade Commission (FTC) enforces the Sherman Act and other antitrust laws. It monitors businesses and challenges them when they're suspected of antitrust activities. The FTC reviews all major mergers and agreements, analyzing their potential effects on consumers and competition. While great in theory, the Sherman Act proved too vague in practice. For instance, it didn't clearly define key terms such as "monopoly" and "trust," and left up for interpretation what constitutes "unreasonable" restraint of trade. This left loopholes through which corporations could argue their defense. As a result, Congress passed the Clayton Antitrust Act in 1914 to amend the Sherman Act. Quick tip: The FTC often relies on information from consumers to know when to investigate a company. You can submit a confidential antitrust complaint to the FTC via email, mail or phone. The Sherman Antitrust Act vs. Clayton Antitrust ActThe Clayton Act strengthens the Sherman Act by clarifying key points in and prohibiting other harmful practices that the Sherman Act does not address, such as mergers and interlocking directorates when one person makes business decisions for competing companies. Hay says the most significant provision that supplements the Sherman Act deals with mergers, primarily between competitors. "The Act says a merger is unlawful if the effect may be substantially to lessen competition," he says. "It is mostly forward-looking in that it allows the government to block a merger that has not happened yet if the predicted effect is that competition may be harmed." The Clayton Act also created new ways of suing under the Sherman Act, UCLA's Grady notes. It allowed private parties to sue for triple damages if they have been harmed by conduct in violation of either the Clayton Act or the Sherman Act. Later, amendments further strengthened the Clayton Act, such as the Robinson-Patman Act amendment of 1936, making it illegal for merchants to use certain discriminatory pricing in their dealings with each other. In 1950, the Celler-Kefauver Act extended the breadth of antitrust laws to include all forms of mergers that substantially reduced competition through monopolization. It also prevented one firm from gaining stock or physical assets in another firm if doing so would inhibit competition. Then in 1976, the Hart-Scott-Rodino Antitrust Improvements amendment required companies to notify the government before engaging in a large mergers or acquisitions. Quick tip: Individual consumers who are harmed by actions that violate the antitrust laws can sue for triple damages. Understanding antitrust lawsThese US antitrust laws are designed to preserve competition in the marketplace. Consumers benefit from competition as it keeps prices low and leads to more and higher-quality options. Without the antitrust laws, businesses could form monopolies allowing them to have outsized control over market prices and the availability of goods. "Our system of enforcing the antitrust laws is complex," Hay says. "There are two federal agencies charged with maintaining competition: the Antitrust Division of the US Department of Justice and the Federal Trade Commission. But in addition, each of the 50 states has laws resembling the federal laws. And on top of that, individuals or companies injured as the result of other entities violating the laws can bring a private action to recover damages." Quick tip: The Sherman Antitrust Act was passed during the height of the gilded age, when entrepreneurs including J.D. Rockefeller, Cornelius Vanderbilt, and J.P. Morgan — collectively known as "robber barons" — were becoming rich by forming monopolies in the steel, petroleum, and transportation industries.
The Sherman Act was the first antitrust law passed by Congress in an attempt to preserve competition in the open market. It was later deemed too vague and amended by the Clayton Act, which gives individuals the right to sue for triple damages if they have been harmed by actions that violate either the Sherman Act or Clayton Act. "The most significant takeaway for the average consumer is that the antitrust laws serve to maintain prices at competitive levels," says Hay. "Not only are consumers better off, but since consumers buy more when prices are lower, workers and suppliers of inputs also benefit."
"An Act to Protect Trade and Commerce Against Unlawful Restraints and Monopolies" The Sherman Antitrust Act is the first antitrust legislation to be passed by the United States Congress. It was introduced during the term of US President Benjamin Harrison. The law was named after Ohio politician, John Sherman, who was an expert in trade and commerce regulation.  Sherman crafted the law to prevent the concentration of power into the hands of a few large enterprises to the disadvantage of smaller enterprises. Specifically, the act attempted to prohibit business practices that attempt to monopolize the market, as well as anti-competitive agreements that push small enterprises and new entrants out of the market. The act gave the federal government and the Department of Justice the authority to institute legal suits against enterprises that violate the act. History of the Sherman Antitrust ActThe Sherman Act is codified 15 U.S.C. §§ 1-38 in Title 15 of the U.S. Code. The law was passed during the Gilded Age (the 1870s to 1900) when the United States experienced great transformation in the economy, government, and technology. At that time, American workers received higher wages than their counterparts in Europe, which led to an influx of millions of European immigrants. The influx resulted in the rapid expansion of industrialization, with the railroad industry experiencing the largest growth. The rapid growth resulted in ruthless competition, as large enterprises became bigger, while the small entities struggled to maintain their profit margins. The uneven business ground led to discussions about controlling large entities to ensure a level playing field for everyone. Although the word “trust” has evolved to mean entities that hold wealth for a third party, it was initially used to mean collusive behavior that made competition unfair. For example, large companies in the railroad industry merged to form strong conglomerates that would dominate the market. Such behavior justified the US Congress’ action to regulate trade and commerce to prevent deliberate monopolization or attempts to monopolize the market. Monopolies that achieve their power through honest and natural means are not subject to the regulation. Sections of the Sherman Antitrust ActThe Sherman Antitrust Act is divided into the following three sections: Section One: Anti-competitive practices that restrain tradeOne of the provisions of the Sherman Antitrust Act makes all anti-competitive practices that restrain trade between states illegal. Some of the practices may include agreements to fix prices, exclude certain competitors, and limit production outputs, as well as combinations to form cartels. Any individual or entity that engages in a contract or combination that is anti-competitive is guilty of a felony. If convicted, such a party will be fined an amount not exceeding $10 million for a corporate entity, or $350, 000 for an individual, or imprisonment not exceeding three years, or both as the court deems fit. Section Two: Prohibits monopolization or attempts to monopolize trade or commerceThe second provision prevents monopolization or attempts to monopolize trade in the United States. Such conduct may include mergers and acquisitions that concentrate too much power in the hands of one entity to the disadvantage of the smaller enterprises. The Federal Trade Commission (FTC) reserves the right to approve or reject mergers and acquisitions transactions in the United States. Corporations and individuals that violate the provision are guilty of a felony, and the Department of Justice can take legal action against them. Section Three: District of Columbia and US TerritoriesThe third section of the Sherman Act extends the provisions provided in sections one and two to the District of Columbia and US territories. Impact of the Sherman Antitrust ActThe Sherman Antitrust Act was implemented at a time when there was growing hostility against companies that were seen to be monopolizing specific markets. Examples of such companies include the American Railway Union and Standard Oil that merged and acquired their smaller competitors to form conglomerates. The conglomerates conspired to charge high prices to consumers while driving small competitors out of business. They also conspired to divide the market into zones where each entity would operate without meddling in the other party’s trading zone. After the Sherman Antitrust Act was enacted, the law was praised by consumers who were on the receiving end of the monopolization and collusion between large and small enterprises. One notable case when the Sherman Antitrust Act was enforced was the Northern Securities Co. vs. United States (1904). Northern Securities was a holding company that controlled the Northern Pacific, Chicago, Great Northern, Burlington, and Quincy railroad companies. The public was alarmed that Northern Securities threatened to monopolize the railroad industry and become the dominant company in the United States. It led to public outcry, as the public and antitrust advocates called for the government’s involvement to prevent such unfair business practices that disadvantaged small and medium enterprises. President Theodore Roosevelt ordered the DOJ to commence legal action against Northern Securities. The case was presented before the Supreme Court in 1903, and the judges ruled 5 to 4 against the stockholders of Northern Pacific and Great Northern. The judgment dissolved the Northern Securities Company, and the stockholders were forced to manage each railroad company independently. Additional ResoucesCFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following CFI resources will be helpful
|
What did the the Sherman Antitrust Act do?
Pos Terkait
Copyright © 2024 ketajaman Inc.
