History of Antitrust Laws
History of antitrust laws goes back to the late 19th century. Powered by the rapid industrialization of the American economy from the mid 1800s, the wealth of the country has increased rapidly (Federal Trade Commission n.d.). Many American entrepreneurs have grown rich and accumulated huge amounts of money. For the first time in the history of American business, mega corporations with huge business revenues came into picture. Firms like Standard Oil, U.S. Steel, American Tobacco Company, and Bell Telephone Company, owned by business tycoons like John D. Rockefeller, had their business interests spread across the country. Such big corporations have stifled the growth of other companies by monopolising their areas of business.
As these big corporations started eliminating competition, small entrepreneurs could not operate their businesses freely. Consumers too started facing several problems due to the lack of many alternatives in the market and because of increased prices of products. Prices of essential commodities like oil started to go through the roof and the quality of these commodities started taking a hit. Lack of any viable competition to the products sold by the trusts did not make them focus on the quality of their products. These excessive profits, leading to big amounts of cash reserves, held by these businesses have enabled them to grow to an extent, where they could even influence the governmental policies related to the industry.
In this way, those big American corporations, popularly known as trusts, owned vast sections of the economy, such as railroads, steel, oil, and telecommunications. The growth of these businesses created conflicts of interest between the corporations and the public, as the public demanded the president – Theodore Roosevelt (at that time) swung into action and started to strain and pressure the power of these giant American corporations. For achieving this, the American government started implementing a number of laws that later came to be known as the antitrust laws. The main objective behind the enactment of these antitrust laws was to protect the interests of consumers and smaller competing businesses by increasing competition in the market. The term antitrust laws gained a much broader meaning during the later days as more and more regulations were introduced to better control the anti-competitive practices followed by companies. Antitrust laws proved to be highly effective and stopped the spread of monopolies in the economy and therefore have put a lid on the unfair business practices followed by the existing big American corporations. American government has passed a few kinds of antitrust laws. Some of the most notable antitrust laws passed in USA are:
Sherman Act
Sherman act is the first and oldest antitrust law passed in USA. Passed in the year 1890, the law makes it illegal for competitors in a business segment to enter into agreements with each other so that they could limit competition in the marketplace. For example, two competitors in an industry cannot agree upon a price they could charge for a product. According to the Sherman act, it is also illegal for a business to become a monopoly in an industry if it is trying to cheat other players or not competing with others on fair terms. Board members and top executives who conducted their businesses on such unfair terms could end up in jails or pay huge fines running into millions of dollars. Sherman act resulted in a massive shakeout in the American corporate sector and a number of trusts were broken up into a number of smaller companies.
Clayton Act
Clayton Act was another major antitrust law passed in the year 1914. After the Sherman act was passed in USA, some corporations came out with the idea of merging with each other as a way to surpass the antitrust act. This has again posed a heavy challenge to the American regulators as bigger corporations were once again emerging into monopolies. To address the challenges posed by this, Clayton act undertook a broader range of measures to stop anti-competitive policies followed by businesses. Many topics such as price fixing, price discrimination, and other unfair business practices are addressed well in the act. The issues that were addressed in the Clayton act were enforced by two American institutions, they are Federal Trade Commission and U.S. Department of Justice’s Antitrust Division.
Federal Trade Commission Act
In order to effectively monitor the anticompetitive policies followed by the U.S. businesses, the US congress has developed a new federal institution called the Federal Trade Commission in 1914. Federal Trade Commission was given the authority to investigate and close down the business practices that are deemed to be unfair and deceptive. Even during these times, Federal Trade Commission enforced the provisions of most of the antitrust laws.
State Antitrust Laws
Other than the above federal antitrust laws, a number of antitrust laws were passed at by the states in America. Many major American states, like Washington, for example, have, passed laws to stop anticompetitive conduct by businesses operating in their states. These state level antitrust laws have supplemented the role played by the federal antitrust laws. A unique feature of the state level antitrust laws is that they are more difficult for the companies to comply with, than the federal laws, in terms of anticompetitive practices that are prohibited. The fines and punitive measures that companies need to incur for breaching the state antitrust laws are higher than for the federal laws.
Since that time, government intervention to protect the competition and prevent the existence of monopolies has become the policy of the US. Since then, the US government has intervened in the business practices of major corporations, like Microsoft and Google, and later on, many other western countries later adopted the policy of U.S. government in intervening in the business affairs of the country. Some of the Asian countries like China and India, which are getting rapidly industrialized, are also following the practice of having their own antitrust laws, as an effective way to control the businesses in the country.