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

Antitrust

What it is:

Antitrust refers to federal laws disallowing companies from monopolizing markets, engaging in price discrimination or price fixing, or otherwise restraining free trade.

How it works (Example):

Antitrust laws apply universally to companies seeking profits, whether they're public or privately held. The case against Standard Oil in the late 1800s is one of the oldest and most prominent antitrust cases in the United States, but more recently AT&T, Microsoft, and a long list of other companies have been found guilty of antitrust violations.

In the United States, three primary federal acts 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. The major federal acts are:

The Sherman Antitrust Act of 1890 primarily works to limit the growth of monopolies, anticompetitive practices, and price fixing, especially in interstate markets. Violations of this act are often prosecuted as criminal felonies.

The Clayton Antitrust Act of 1914 extended the U.S. governments power to break up monopolies, price-fixing agreements, and attempts to suppress competition or collude with other companies to fix markets. Violations of the Clayton Act do not carry criminal penalties.

The Hart-Scott-Rodino Act (a portion of the Clayton Act) requires companies considering mergers or acquisitions of a certain size to notify the Antitrust Division of the Department of Justice and the Federal Trade Commission so that these authorities can evaluate whether the transaction violates any parts of the act. Without federal approval, companies can't complete their mergers.

Why it Matters:

Antitrust laws are in place to prevent businesses from depriving consumers of the benefits of competition, which include lower prices and more choices between goods and services.

However, proponents argue that antitrust laws punish businesses for success and reward companies that are too inefficient to compete. In any case, antitrust law is full of grey areas because so much of it is subject to interpretation, how one defines a market, and other factors.

It is important to note that companies need not be successful in their anticompetitive schemes to face prosecution in some cases; the Sherman Act, for example, punishes even attempts to monopolize markets.