Antitrust

Trusts are otherwise known as combinations or mergers. Businesses combine to dominate a market, minimize competition, or maximize profit by controlling prices. In the United States, trusts became particularly repugnant in the 19th century, as various businesses incorporated and formed trusts to defraud consumers. The creation of the Standard Oil monopoly in the 19th century inspired many other industries to consolidate into similar trusts, including linseed oil, cotton seed oil, lead, sugar, distilling, matches, tobacco, and rubber. Wealth soon became concentrated in the hands of a few.

Monopolies had long been illegal in common law, but in the 1880s, more stringent laws were made, and some dissolved trusts. A trust dissolved in one state, however, could incorporate in another where the laws were much more amicable or lenient, with lax enforcement. The problem soon became a matter of federal rather than state regulation.

The railroad monopoly and price gouging hit farmers the hardest, as they were charged excessive rates and given poor service. The Munn v. Illinois case of 1877 cleared the way for the regulation of what had seemed to be private property (railroads).

The 1887 Interstate Commerce Act regulated the price wars and legislated that all prices should be just (fair); and then, in 1890, Congress passed the Sherman Antitrust Act.

The Sherman Act made every contract and combination in the form of trust illegal and a conspiracy in the restriction of trade or commerce. For some time the act was, however, used as an instrument to prohibit labor strikes, more so than combinations, until it was enhanced by the Clayton Act of 1914 to define its jurisdictional parameters. The Robinson-Patman Act of 1936 further improved on the authority of the Clayton Act to outlaw price discrimination (a mechanism of antitrust practices). Illicit combinations tend to reduce quantity, provide poor service, and charge exorbitant prices in the absence of competition. The Securities and Exchange Commission (SEC) and the U.S. Justice Department currently play a decisive role in the permission and punishment of trust activities. For more information, see Munn v. Illinois (1877) and Nevins and Commager (1992).