Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Baby Bills

What it is:

Similar to how the U.S. Department of Justice forced the breakup of "Ma Bell" into seven "baby bells," Baby Bills refer to the companies that would have resulted from a breakup of Microsoft Corporation. (The term is a play on the name of Microsoft founder Bill Gates.)

How it works (Example):

With its Windows and Office products, Microsoft has dominated the market for computer operating systems, which in turn has led to considerable conversation and speculation about whether the company is in violation of antitrust laws. In 2000, the U.S. government called for the company's breakup, though the decision was reversed in 2001.

Why it Matters:

The idea behind antitrust laws is to prevent businesses from depriving consumers of the benefits of competition, which in turn create higher prices.

Unregulated monopolies, price discrimination, price fixing, and other attempts to restrain free trade are generally illegal in the United States. Three primary federal acts (the Sherman Antitrust Act of 1890, the Clayton Antitrust Act of 1914, and the Hart-Scott-Rodino Act) govern the antitrust arena, and many states have their own antitrust legislation as well.

At the federal level, the Department of Justice and the Federal Trade Commission are responsible for evaluating and prosecuting violations of these acts. It is important to note that companies need not be successful in their anticompetitive schemes to face prosecution; the Sherman Act, for example, punishes even attempts to monopolize markets.

The FTC and DOJ commonly review mergers for antitrust violations. Without federal approval, companies usually can't complete their mergers, which is why some companies will divest certain subsidiaries if it greases the skids.

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