However, the law is not simply violated if a firm`s fierce competition and falling prices deprive its less efficient competitors of turnover; In this case, the competition works properly. Antitrust laws regulate economic competition to maintain fair business practices (West, n.d.). They were created to prevent trade restrictions created by trusts and other corporate practices. These restrictions have often led to price fixing, production control and control of geographic markets (Jurist, n.d.). Many States have recognized that these results pose a threat to fair trade practices. The federal government also recognized this problem and developed antitrust laws in 1887 following the creation of a Standard Oil Trust. The Standard Oil Trust came into being when oil companies transferred their shares to a trustee to create a more powerful block of oil companies that prevented other oil companies from competing with them (West, n.d.). The pace of business acquisitions accelerated in the 1990s, but whenever a large company attempted to acquire another, it first had to seek approval from the FTC or the Department of Justice. The government has often required that certain subsidiaries be sold so that the new company does not monopolize a particular geographic market. [ref. needed] The Sherman Antitrust Act, proposed in 1890 by Senator John Sherman of Ohio, was the first measure passed by the U.S. Congress to ban trusts, monopolies and cartels.
The Sherman Act also prohibited contracts, conspiracies, and other business practices that restricted trade and created monopolies within industries. For example, the Sherman Act states that competing individuals or companies cannot set prices, divide markets, or attempt to manipulate bids. The law also established specific penalties and fines for violating its rules. The history of U.S. antitrust law generally begins with the Sherman Antitrust Act of 1890, although throughout the history of common law there has been some form of policy to regulate competition in the market economy. Although the term “trust” has a technical legal meaning, the word was often used to refer to large corporations, especially a large, growing manufacturing conglomerate of the kind that suddenly appeared in large numbers in the 1880s and 1890s. The Interstate Commerce Act of 1887 ushered in a shift toward federal, rather than state, regulation of large corporations. [1] This was followed by the Sherman Antitrust Act of 1890, the Clayton Antitrust Act and Federal Trade Commission Act of 1914, the Robinson-Patman Act of 1936 and the Celler-Kefauver Act of 1950. The courts have used the rule of reason as a test. The rule of reason explored the purpose of the treaty, which was considered either an outright restriction or an ancillary restriction. Outright restriction occurs when contracts promote a general restriction of competition. If restraint was created for the purpose of achieving a long-term effect without limits, it was considered an outright constraint (West, n.d.).
An additional restriction occurs because the restriction is limited in time and geography (West, N/A). In the event of an additional restriction, the restriction would be short-lived and limited in scope. The courts tended to disapprove of outright coercion, but were less compatible with collateral guarantees. Initially, there did not seem to be a comprehensive common law applied in the same way from state to state (West, n.d.). This problem was sufficiently concerning to warrant a solution, and in 1890 the first antitrust law was enacted (Jurist, n.d.). That it be decided by the Senate and the House of Representatives of the United States of America in Congress, § 1. Any treaty, association in the form of a trust or otherwise, or conspiracy to restrict trade or commerce between states or with foreign nations is declared illegal. Any person entering into any such contract or engaging in any such combination or conspiracy shall be convicted of a misdemeanor and, if convicted, shall be liable to a fine not exceeding five thousand dollars or imprisonment for a term not exceeding one year, or both, at the discretion of the court. The first antitrust law created was the Sherman Antitrust Act in 1890, which became the basis for subsequent antitrust laws (Jurist, 2013). The Sherman Act was a good start, but it was not comprehensive enough to prevent trusts, and large corporations continued to exert strong control over industries. At the turn of the century, a few large companies controlled almost half of all production facilities in the country (West, n.d.).
It became clear that more legislation was needed. President Theodore Roosevelt called himself a “trustbuster” and launched a campaign to create more effective legal efforts (West, n.d.). Other antitrust laws were passed in 1914, including the Clayton Act and the Federal Trade Commission Act. These laws are still in force, and since 1914 they have been amended by Congress to further expand and consolidate coverage. Antitrust laws are estimated to save consumers millions of dollars annually by prohibiting business practices that unfairly increase the prices of goods and services (United States Department of Justice, n.d.). Unfair trade practices do not only affect commercial trusts. Problems have also arisen with agreements between competitors, contracts between sellers and buyers, and practices that have created or maintained cartels, monopolies and mergers (West, n.d.). There were no specific laws regulating these practices, so the courts were not entirely sure how to deal with them. Initially, the courts seemed to lean both ways, accepting and condemning certain forms of trade restrictions. Decisions were not uniform from state to state and guidelines needed to be established. The guiding condition seemed to be whether the restrictions prevented other traders from entering the market (West, n.d.). Proponents say antitrust laws are necessary for an open market to exist and thrive.
Competition between sellers offers consumers lower prices, better products and services, more choice and more innovation. Opponents argue that allowing companies to compete as they see fit would ultimately bring consumers the best prices. The Sherman Antitrust Act (the Act) is an important milestone in the United States. The act passed in 1890 prohibited trusts – groups of corporations that collude or merge to form a monopoly to dictate prices in a particular market. The purpose of the law was to promote economic justice and competitiveness and to regulate interstate trade. The Sherman Antitrust Act was the first attempt by the U.S. Congress to address the use of trusts as a tool for a limited number of people to control certain key industries. The Sherman Antitrust Act was enacted in 1890 to restrict power combinations that interfered with trade and reduced economic competition. It prohibits both formal cartels and attempts to monopolize any part of trade in the United States. One problem some saw with the Sherman Act was that it was not entirely clear which practices were prohibited, leaving businessmen unsure what they were allowed to do and state antitrust authorities unsure of what business practices they could challenge. In the words of one critic, Isabel Paterson, “As crazy legislation, antitrust laws stand on their own.
No one knows what they are forbidding. In 1914, Congress passed the Clayton Act, which prohibited certain business activities (such as price discrimination and tied selling) if they significantly lessened competition. At the same time, Congress created the Federal Trade Commission (FTC), whose legal and economic experts could force companies to accept “consent decrees,” which were an alternative mechanism to antitrust policing. The law received immediate public approval, but because the definition of concepts such as trusts, monopolies and collusion was not clearly defined in the legislation, few companies were actually prosecuted as part of its actions. Section 1 of the Act is broad and far-reaching, stating that “any treaty, combination of trust or otherwise, or conspiracy to restrict trade or commerce between states or with foreign nations, shall be declared illegal.” Article 2 of the law prohibits monopolization or attempted monopolization of any aspect of interstate commerce, and makes the law a crime. By the end of the 19th century, hundreds of small short-haul railways were purchased and consolidated into huge systems.