Sherman Antitrust Act of 1890
SHERMAN ANTITRUST ACT OF 1890
The Sherman Antitrust Act of 1890, the first and most significant of the U.S. antitrust laws, outlawed trusts and prohibited "illegal" monopolies. The act applies to both domestic companies and foreign companies doing business in the United States. A trust is a relationship between businesses that collaborate through anticompetitive agreements to gain market dominance. Trusts cut prices to drive competitors out of business. Illegal monopolies are those that can be shown to use their power to suppress competition. A monopolist has the power to dominate markets—the ability to set the price by altering supply. Anticompetitive techniques include:
- Buying out competitors
- Requiring customers to sign long-term agreements
- Compelling customers to buy products they do not want in order to receive other goods
The Sherman Antitrust Act, along with the Clayton Antitrust Act of 1914 and the Federal Trade Commission Act of 1914, constitutes a large part of the regulatory umbrella under which U.S. business operates. Through the passage of the Sherman Antitrust Act, the U.S. Congress provided safeguards to prevent firms from merging with other firms if the effect was to substantially lessen competition and create monopolies.
The Federal Trade Commission (FTC) and the Antitrust Division of the U.S. Department of Justice enforce antitrust laws. The FTC has the power to temporarily stop companies from employing suspected anti-competitive practices, while the Justice Department probes and prosecutes businesses.
The Sherman Antitrust Act was passed in response to strong and widespread political pressure to deal with "the trust problem" that reached a peak during the presidential election campaign of 1888. The trusts were corporate holding companies that by 1888 had consolidated a very large share of U.S. manufacturing and mining industries into nationwide monopolies. Some of the most notorious corporate holding companies were the sugar trust, John D. Rockefeller's oil trust, and J. P. Morgan's steel trust. The original legal form of these organizations had been as business trusts.
The Sherman Antitrust Act made trusts and those who violated the act subject to civil remedies and criminal penalties in actions by the Department of Justice and to treble damages in private suits. The act was broad, providing few standards, which meant the executive branch and federal courts had to resolve the trust issues. The act was revised by the Clayton Antitrust Act, which was designed to catch early-stage practices that were thought to lead to
monopolies, such as corporate mergers and acquisitions, price discrimination, tying agreements, and interlocking directorships. Other antitrust acts followed, including the Federal Trade Commission Act of 1914, the Robinson-Patman Act of 1936, and the Celler-Kefauver Antimerger Act of 1950.
Consequences of being found guilty of antitrust activity and being a monopoly are a fine not exceeding $10 million if a corporation, or $350,000 if person, or by imprisonment not exceeding three years, or by both punishments, at the discretion of the court. Furthermore, the court can require breakup of the company and other consequences based on individual cases.
According to Peter Dickson and Philippa Wells it is one of the great ironies in U.S. jurisprudence and free-market capitalism that the Sherman Act became the foundation of modern economic regulation, the legislative promoter and protector of the competitive efficiency of the modern competitive political economy. They posit that the Sherman Antitrust Act has survived in the age of global tariff protection, and now that tariffs are coming down, its reach is becoming even greater, extending into global markets.
Today in the United States monopolistic power means that a business has the ability to raise prices above competitive levels. This typically occurs when an organization has exclusive control over a commercial activity, such as the production or selling of a commodity or service, and thus has the power to fix prices unilaterally because it has no effective competition. Significant antitrust litigation has included the following:
EARLY TWENTIETH CENTURY
- American Tobacco: broken up into separate companies
- Standard Oil: broken up into separate oil-refining and pipeline companies
- U.S. Steel: no illegal monopoly found
FROM THE LATE TWENTIETH CENTURY ON
- IBM: accused of being an illegal monopoly; case dropped
- AT&T: accused of being an illegal monopoly; broken up into one long-distance and seven "Baby Bell" local phone companies
- Microsoft: accused of using monopoly power to sell other products
- Intel: accused of severing business ties with customers who sued it; penalties varied depending on customers bringing litigation
- Weyerhaeuser: federal jury ruled Weyerhaeuser used illegal tactics to force a competing sawmill out of business
see also Antitrust Legislation
Dickson, Peter R., and Wells, Philippa K. (2001, Spring). The dubious origins of the Sherman Antitrust Act: The mouse that roared. Journal of Public Policy and Marketing, 20 (1), 3.
FTC approves Intel deal. (2000, March 6). The Washington Post. From http://www.washingtonpost.com/wp-srv/business/longterm/intel/intel.htm, retrieved January 5, 2006.
Garman, E. Thomas (2005). Consumer economics issues in America (8th ed.). Mason, OH: Thomson Custom Solutions.
Rivera, D. (2003, April 19). Weyerhaeuser loses lawsuit; jury says timber giant illegally eliminated rival. The Oregonian (Portland, OR). Retrieved from http://www.oregonlive.com/search/oregonian/ January 5, 2006.