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Table of Contents Expand. What Are Antitrust Laws? Market Allocation. Bid Rigging. Price Fixing. Mergers and Acquisitions. The Big Three Antitrust Laws. The Bottom Line. Key Takeaways Antitrust laws are statutes developed by governments to protect consumers from predatory business practices and ensure fair competition.
Antitrust laws are applied to a wide range of questionable business activities, including market allocation, bid rigging, price fixing, and monopolies. Core U. Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.
We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Compare Accounts. The Federal Trade Commission Act bans "unfair methods of competition" and "unfair or deceptive acts or practices. The FTC Act also reaches other practices that harm competition, but that may not fit neatly into categories of conduct formally prohibited by the Sherman Act.
The Clayton Act addresses specific practices that the Sherman Act does not clearly prohibit, such as mergers and interlocking directorates that is, the same person making business decisions for competing companies. Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly.
The Clayton Act was amended again in by the Hart-Scott-Rodino Antitrust Improvements Act to require companies planning large mergers or acquisitions to notify the government of their plans in advance.
The Clayton Act also authorizes private parties to sue for triple damages when they have been harmed by conduct that violates either the Sherman or Clayton Act and to obtain a court order prohibiting the anticompetitive practice in the future. In addition to these federal statutes, most states have antitrust laws that are enforced by state attorneys general or private plaintiffs. Many of these statutes are based on the federal antitrust laws.
Main Menu. Indeed, the recent antitrust suits filed against Microsoft by the Department of Justice and 20 state attorneys general promise to generate renewed debate about the role government has in ensuring a competitive marketplace. Because the application of antitrust law relies heavily on economic principles and analyses of potential outcomes, it's worthwhile to take a look at what economists have to say about the structure and operation of American business.
Antitrust economics is part of a branch of economics known as industrial organization , which attempts to explain the structure and competitive behavior of firms and industries. When economists talk about the structure of any industry, they are generally referring to the number of firms that provide products or services to a given market; the barriers to entry for new firms; and the degree of product differentiation.
The structure of an industry selling a homogeneous, or similar, product or service can be described in one of three ways: 1 perfectly competitive no barriers to entry, many sellers with no pricing power ; 2 oligopolistic barriers to entry, a few sellers with some pricing power ; or 3 a pure monopoly barriers to entry, one seller with complete pricing power.
Since it is the exercise of monopoly or market power that is problematic, economists and policymakers are more concerned about the way firms in an industry behave than the structure of the industry per se. Indeed, in some circumstances, a monopoly structure yields the most efficient, socially desirable outcome. Natural monopolies are one example. They occur in markets in which additional output can be produced at a lower per-unit cost, such as the public utility industries. Monopolies are even encouraged in other types of markets.
According to the nation's antitrust laws, a monopoly is not—strictly speaking—illegal. Rather, the laws are used primarily by federal authorities—the Department of Justice and the Federal Trade Commission FTC —both to rein in firms that exercise excessive market power and to limit the way in which firms compete with one another.
Antitrust officials are guided by three major federal statutes: the Sherman Act of , the Clayton Act of and the Federal Trade Commission Act of Section 1 of the Sherman Act prohibits restraint of trade.
On its surface, the more widely invoked Section 2 of the act appears to outlaw monopoly outright "every person who shall monopolize or attempt to monopolize The courts, however, have interpreted the act less literally, saying that it merely forbids monopolistic behavior. The Clayton Act is more specific than the Sherman Act; it describes the type of conduct and practices that will get a firm or group of firms into trouble. Sections 2, 3 and 7 of the act forbid any price discrimination, tie-ins, exclusive dealing or mergers that would lessen competition see chart for descriptions of these and other exclusionary practices.
The act also entitles plaintiffs that successfully bring antitrust suits to treble damages and attorneys fees. Section 5 of the act prohibits "unfair" methods of competition; these activities are not defined in the act, however, so it has been up to the courts to make those determinations. There are very few business practices that are blatantly illegal.
The few that are, like price fixing, are called per se violations. When a per se violation is alleged, it is not necessary for a plaintiff to show that actual harm was done. Rather, in most antitrust cases, the courts have applied a rule of reason analysis, which means that the conduct is examined for two things: 1 to see if it restricts competition in a significant way; and 2 to determine if it has any overriding business justification.
Many arrangements among competitors, like organized exchanges e.
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