Antitrust Laws

Background

It only took a single generation from the end of the Civil War for the United States to emerge as a world industrial power. During this period of rapid economic growth, the modern business enterprise was born in response to changes and opportunities in the economy. The corporate form of organization was used more and more frequently to make these enterprises even larger, as it allowed more capital to be accumulated and spread the risk across large numbers of stockholders. The growth of these large enterprises, however, posed a threat to the competitive structure of the economy.

They often engaged in predatory pricing practices such as cutting prices below cost to drive smaller firms out of business to gain a monopoly position.

As competition became more and more severe in the late 19th century and individual firms found it difficult to gain a monopoly position, collusion between firms was not uncommon. The largest organizations created various arrangements with their competitors such as gentlemen's agreements and pools and new organizational innovations such as trusts and holding companies to reduce competition and gain control of an industry. These practices affected competition in the economy as a whole, and the economic power of large firms gave them the ability to dictate the terms of trade to smaller groups such as farmers, wholesalers, and retailers. There were no rules to regulate the behavior of these enterprises, and competition was disappearing in an unregulated market economy that became more and more concentrated.

Society began to fear the power of these enterprises, and the government responded to this concern by passing laws aimed at curbing their economic power and restoring competition in the economy. These laws were meant to embody the ideal of competition and provided a way for society to reaffirm its belief in the notion of a purely competitive economy where economic power is limited. The history of antitrust laws in the United States shows that the complex social and economic impacts of big business lead to institutional responses that interpret and enforce economic philosophy and political ideology.

The Laws

The Sherman Act of 1890 was the first piece of antitrust legislation and was supported by a coalition of small businesses and farm groups who were concerned about the economic power of the large trusts that, at the end of the century, had come to dominate many industries. The most important parts of the Sherman Act are the first and second sections. The first section attacks the act of combining or conspiring to restrain trade and focuses on methods of competition or firm behavior. This section seems to make illegal every formal arrangement among firms aimed at curbing independent action in the market. It places restrictions on market conduct, in particular those means of coordination between sellers who use formal agreements to reduce the independence of their actions. The second section enjoins market structures where [Page 101]seller concentration is so high it could be called a monopoly.

...