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Antitrust law—also called competition law—limits how competitors may act in the marketplace, unilaterally and especially collectively. The aim of antitrust law is to promote social welfare by protecting the competitive process. Two federal agencies are responsible for U.S. antitrust enforcement—the U.S. Department of Justice and the Federal Trade Commission. In addition, state attorneys general and private parties may bring antitrust suits to enjoin specific conduct or recover damages suffered as a result of antitrust violations.
One major antitrust law is the Sherman Act of 1890. It was the congressional response to the invention of the trust, a contractual coordination among competitors used to drive up prices. The U.S. Supreme Court developed two frameworks for applying Section 1 of the Sherman Act, which addresses anticompetitive agreements, including those forming trusts. The per se rule prohibits categories of agreements without consideration of their actual effects because they are inherently likely to eliminate competition without any offsetting social benefits. The most important of these categories are cartel agreements through which competitors fix prices, rig bids, or allocate customers. Cartels are prosecuted as felonies, and prosecution of international cartels since the mid-1990s resulted in many fines in excess of $100 million and imprisonment for many corporate executives. The rule of reason prohibits agreements in other categories if determined actually to harm competition.
Section 2 of the Sherman Act addresses unilateral conduct that would “monopolize” an industry. It has been applied sparingly, especially in recent decades. Landmark early cases resulted in the breakup of the American Tobacco Company and the Standard Oil Company. The most notable modern case involved Microsoft Corporation and resulted in a variety of prohibitions and requirements on its conduct.
The other major antitrust law is the Clayton Act of 1914, which contains several specific prohibitions, the most important of which applies to mergers that would substantially “lessen competition.” Since the 1970s, large mergers have been reviewed by federal agencies prior to consummation. The agencies file suit against roughly a dozen mergers per year, although all but a few are later consummated after the merging parties agree to divest significant assets. Controversial cases include the Justice Department’s unsuccessful challenge to Oracle Corporation’s takeover of PeopleSoft, and oil industry mergers the Federal Trade Commission allowed to proceed.
Antitrust law and policy have evolved considerably, especially as insights from economics were incorporated through case law development. At the vanguard was the Chicago School, which drew attention to efficiency reasons for business practices and was instrumental in limiting the application of the per se rule. Since the early 1980s, increasingly sophisticated economic analysis has been applied. The federal agencies and the courts rely on economic analysis in predicting the competitive effects of proposed mergers and assessing the effects of ongoing business practices.
Antitrust law was unique to the United States for a considerable time, but more than one hundred countries now have antitrust laws. These laws generally prohibit cartel activity, anticompetitive mergers, various specific business practices, and what is termed abuse of dominance. The prohibition of abuse of dominance is similar to Section 2 of the Sherman Act. International views on antitrust have converged a great deal, although complete convergence likely never will be achieved.
Outside cartel enforcement, debates on antitrust policy continue. Nearly all agree on basic goals of antitrust policy, but the best means to achieve those goals remain controversial. Recent debates have focused mainly on the proper standards for evaluating the potentially exclusionary conduct of a single competitor. Controversial practices include 3M’s use of rebates across multiple product lines in sales to retailers (found unlawful in the United States) and Microsoft’s inclusion of its media player in its Windows PC operating system (found unlawful in Europe).
- Bork, Robert H. 1993. The Antitrust Paradox: A Policy at War with Itself. 2nd ed. New York: Free Press.
- Carlton, Dennis W., and Jeffrey M. Perloff. 2005. Modern Industrial Organization. 4th ed. Boston: Addison Wesley.
- Connor, John M. 2001. Global Price Fixing: Our Customers Are the Enemy. Boston: Kluwer.
- Hovenkamp, Herbert. 2005. The Antitrust Enterprise: Principle and Execution. Cambridge, MA: Harvard University Press.
- Hylton, Keith N. 2003. Antitrust Law: Economic Theory and Common Law Evolution. Cambridge, U.K.: Cambridge University Press.
- Kwoka, John E., Jr., and Lawrence J. White, eds. 2004. The Antitrust Revolution: Economics, Competition, and Policy. 4th ed. New York: Oxford University Press.
- Posner, Richard A. 2001. Antitrust Law. 2nd ed. Chicago: University of Chicago Press.
- Shenefield, John H., and Irwin M. Stelzer. 2001. The Antitrust Laws: A Primer. 4th ed. Washington, DC: AEI Press.
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