United States antitrust law
In the United States, antitrust law is a collection of mostly federal laws that govern the conduct and organization of businesses in order to promote economic competition and prevent unjustified monopolies. The three main U.S. antitrust statutes are the Sherman Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914. Section 1 of the Sherman Act prohibits price fixing and the operation of cartels, and prohibits other collusive practices that unreasonably restrain trade. Section 2 of the Sherman Act prohibits monopolization. Section 7 of the Clayton Act restricts the mergers and acquisitions of organizations that may substantially lessen competition or tend to create a monopoly.
Federal antitrust laws provide for both civil and criminal enforcement. Civil antitrust enforcement occurs through lawsuits filed by the Federal Trade Commission, the Antitrust Division of the U.S. Department of Justice, and private parties who have been harmed by an antitrust violation. Criminal antitrust enforcement is done only by the Justice Department's Antitrust Division. Additionally, U.S. state governments may also enforce their own antitrust laws, which mostly mirror federal antitrust laws, regarding commerce occurring solely within their own state's borders.
The scope of antitrust laws, and the degree to which they should interfere in an enterprise's freedom to conduct business, or to protect smaller businesses, communities and consumers, are strongly debated. Some economists argue that antitrust laws actually impede competition, and may discourage businesses from pursuing activities that would be beneficial to society. One view suggests that antitrust laws should focus solely on the benefits to consumers and overall efficiency, while a broad range of legal and economic theory sees the role of antitrust laws as also controlling economic power in the public interest.
Surveys of American Economic Association members since the 1970s have shown that professional economists generally agree with the statement: "Antitrust laws should be enforced vigorously." A 1990 survey of AEA members found that 72 percent generally agreed that "Collusive behavior is likely among large firms in the United States", while a 2021 survey found that 85 percent generally agreed that "Corporate economic power has become too concentrated."
Nomenclature
In the United States and Canada, and to a lesser extent in the European Union, the law governing monopolies and economic competition is known by its original name: "antitrust law". The term "antitrust" came from late 19th-century American industrialists' practice of using trusts—a legal arrangement where someone is given ownership of property to hold solely for another's benefit—to consolidate separate companies into large conglomerates. These "corporate trusts" died out in the early 20th century as U.S. statespassed laws that made it easier to create new corporations. In most other countries, antitrust law is now called "competition law" or "anti-monopoly law".
History
Creation and early years (1890–1910s)
American antitrust law formally began in 1890 when the U.S. Congress passed the Sherman Act, although a few U.S. states had already passed local antitrust laws during the previous year. Using broad and general wording, the Sherman Act outlawed "monopoliz" and "every contract, combination... or conspiracy in restraint of trade".Federal judges quickly began struggling with the broad wording of the Sherman Act, recognizing that interpreting it literally could make even simple business associations such as partnerships illegal. They began developing principles for distinguishing between "naked" trade restraints between rivals that suppressed competition and other restraints that promoted competition.
The Sherman Act gave the U.S. Department of Justice the authority to enforce it, but the U.S. presidents and U.S. Attorneys General in power during the 1890s and early 1900s showed little interest in doing so. With little interest in enforcing the Sherman Act and courts interpreting it narrowly, a wave of large industrial mergers swept the United States in the late 1890s and early 1900s. The rise of the Progressive Era prompted public officials to increase enforcement of antitrust laws. The Justice Department sued 45 companies under the Sherman Act during the presidency of Theodore Roosevelt and 90 companies during the presidency of William Howard Taft.
Rise of "Rule of Reason" (1910s–1930s)
In 1911, the U.S. Supreme Court reframed U.S. antitrust law as a "rule of reason" in its landmark decision Standard Oil Co. of New Jersey v. United States. The Justice Department had successfully argued that the petroleum conglomerate Standard Oil, led by its founder John D. Rockefeller, had violated the Sherman Act by building a monopoly in the oil refining industry through economic threats against competitors and secret rebate deals with railroads. Standard Oil appealed, but the Supreme Court affirmed the trial court's verdict. The Court ruled that Standard Oil's high market share was proof of its monopoly power and ordered it to break itself up into 34 separate companies. At the same time, the Court said that although the Sherman Act prohibited "every" restraint of trade, it actually banned only those that were "unreasonable". In a more than 80-page-long opinion written by Chief Justice Edward Douglass White, the Court explained that the Sherman Act should be interpreted as a "rule of reason" under which the legality of most business practices is evaluated on a case-by-case basis according to their effect on competition, with only the most egregious practices being illegal per se.Many observers thought the Supreme Court's decision in Standard Oil represented an effort by conservative federal judges to "soften" the Sherman Act and narrow its scope. Congress reacted in 1914 by passing two new laws: the Clayton Act, which outlawed using mergers and acquisitions to achieve monopolies and created an antitrust law exemption for collective bargaining; and the Federal Trade Commission Act, which created the FTC as an independent agency with shared jurisdiction with the Justice Department over federal civil antitrust enforcement and the power to prohibit "unfair methods of competition".
Despite the passage of the Clayton Act and the FTC Act, U.S. antitrust enforcement was not aggressive between 1914 and the 1930s. Based on their experience with the War Industries Board during World War I, many American leaders took the associationalist view that close collaboration among business leaders and government officials could efficiently guide the economy. Some abandoned faith in free market competition entirely after the Wall Street Crash of 1929. Advocates of these views championed the passage of the National Industrial Recovery Act of 1933 and the centralized economic planning experiments during the early stages of the New Deal. The Supreme Court's antitrust decisions during this period reflected these views and took a "largely tolerant" attitude toward collusion and cooperation between competitors. One prominent example was the 1918 decision Chicago Board of Trade v. United States, in which the Court ruled that a Chicago Board of Trade rule banning commodity brokers from buying or selling grain forwards after the close of business at 2:00pm each day at any price other than that day's closing price did not violate the Sherman Act. The Court said that although the rule was a restraint on trade, a comprehensive examination of the rule's purposes and effects showed that it "merely regulates, and perhaps thereby promotes competition."
Structuralist approach (1930s–1970s)
In the mid-1930s, confidence began to fade in economic statism and the centralized economic planning models that had been popular in the early years of the New Deal era. President Franklin D. Roosevelt's advisors began persuading him that free-market competition was the key to recovery from the Great Depression, at the urging of economists such as Frank Knight and Henry C. Simons. Simons, in particular, argued for robust antitrust enforcement to “de-concentrate” American industries and promote competition. In response, Roosevelt appointed Thurman Arnold and other "trustbusting" lawyers to serve in the Justice Department's Antitrust Division, which had been established in 1919.This intellectual shift influenced American courts to abandon their acceptance of sector-wide cooperation among companies. Instead, American antitrust jurisprudence began following strict "structuralist" rules that focused on the structures of markets and their levels of concentration. Judges usually gave little credence to defendant companies' attempts to justify their conduct using economic efficiencies, even when economic data and analysis supported them. In its 1940 decision United States v. Socony-Vacuum Oil Co., the Supreme Court refused to apply the rule of reason to an agreement between oil refiners to buy up surplus gasoline from independent refining companies. It ruled that price-fixing agreements between competing companies were illegal per se under section 1 of the Sherman Act and would be treated as crimes even if the companies claimed to be merely recreating past government planning schemes. The Court began applying per se illegality to other business practices such as tying, group boycotts, market allocation agreements, exclusive territory agreements for sales, and vertical restraints limiting retailers to geographic areas. Courts also became more willing to find that dominant companies' business practices constituted illegal monopolization under section 2 of the Sherman Act.
American courts were even stricter when hearing merger challenges under the Clayton Act during this era, due in part to Congress's passage of the Celler-Kefauver Act of 1950, which banned consolidation of companies' stock or assets even in situations that did not produce market dominance. For example, in its 1962 decision Brown Shoe Co. v. United States, the Supreme Court ruled that a proposed merger was illegal even though the resulting company would have controlled only five percent of the relevant market. In a now-famous line from his dissent in the Supreme Court’s 1966 decision United States v. Von's Grocery Co., Justice Potter Stewart remarked: "The sole consistency that I can find is that in litigation under , the Government always wins."