Antitrust law in the USA
VASILIEVA SNEZHANA
VOROZHBYT MARYNA
The Objectives of Antitrust and Competition Law in the United
States
In the 1800s, there were several giant businesses, called “trusts,” that controlled vast
sections of the United States economy. Two of the more prominent trusts, U.S. Steel
and Standard Oil, monopolized the steel and oil industries, respectively. Additional
trusts existed in the sugar, railroad, and whiskey industries. The trusts controlled
entire lines of business without competition and prices skyrocketed as a result. In
order to protect consumers, then President Theodore Roosevelt broke up trusts by
enforcing what came to be known as “antitrust laws.” Roosevelt became known as the
“trust-buster” for his numerous political reforms that increased trust regulation.
The goal of the antitrust laws is to protect consumers by promoting fair competition in
the market place. Antitrust laws do not necessarily seek to protect businesses from
failing or from facing aggressive competition.
Core Principles of Federal Antitrust Law
Two Federal Antitrust Agencies – Department of
Justice (DOJ) and Federal Trade Commission (FTC)
focus on 6 core antitrust principles:
1. Competition encourages consumer choice in the
selection of goods and services better than any other
market mechanism;
2. Competition creates incentives for sellers and
suppliers to be innovative in providing quality
products and services;
3. Competition is an effective market force for controlling
costs and forcing businesses to be efficient;
4. Antitrust enforcement is critical to preventing and
removing anticompetitive practices like price fixing,
boycotts, market allocation schemes and other
anticompetitive practices that impede market
reforms;
5. Antitrust enforcement prevents transactions – such as
mergers or joint ventures – that give dominant
market participants too much “market power” that
could lead to high prices, reduced services, or
exclusionary practices;
6. Enforcement is not intended to pick winners and
losers, but to keep the playing field open to let
competitive forces – not regulation – shape consumer
demand and industry responses.
Key Terms and Concepts
Market Power: Ability of a firm (or
cartel) to increase the price of
products/services above competitive
level, reduce quality or innovation
below competitive level, or exclude
competition, i.e., the ability to cause
anticompetitive effects.
- Generally, Market Power required to
demonstrate an antitrust violation.
- Market Power (typically) = High
Market Share.
- Procompetitive: Activity that
enhances a firm’s ability to lower
prices/increase output (e.g., a merger
that creates efficiencies or new
products).
Key Terms and Concepts
Rule of Reason: Most
transactions and conduct (except
collusion) are analyzed to see
whether the procompetitive
benefits outweigh the
anticompetitive effects.
Per Se: Activities deemed to lack
any serious procompetitive
effects, that almost always lead
to higher prices/reduced output,
are considered automatically
illegal, i.e., they cannot be
justified as a matter of law.
Sherman Antitrust Act
The United States first antitrust law, the
Sherman Antitrust Act, was passed by
Congress in 1890. Perhaps the most
significant of the federal antitrust laws,
the Sherman Act was intended to
combat the “business trusts” of the
American economy during the late 19th
century, and to this day it remains the
bedrock of antitrust enforcement.
The Sherman Act prohibits two broad
categories of conduct. First, it declares
to be illegal “contract, combination, in
the form of trust or otherwise, or
conspiracy, in restraint of trade or
commerce among the several States, or
with foreign nations.” Second, it
prohibits efforts to “monopolize ...
attempt[s] to monopolize, or . . .
conspir[acies] ... to monopolize any part
of the trade or commerce among the
several States, or with foreign nations.”
Penalties for violating the Sherman Act
can be either civil or criminal in nature.
Clayton Antitrust Act
Clayton Antitrust Act, law enacted in 1914 by the United States
Congress to clarify and strengthen the Sherman Antitrust Act (1890). The
vague language of the latter had provided large corporations with
numerous loopholes, enabling them to engage in certain restrictive
business arrangements that, though not illegal per se, resulted in
concentrations that had an adverse effect on competition.
Whereas the Sherman Act only
declared monopoly illegal, the
Clayton Act defined as illegal
certain business practices that
are conducive to the formation of
monopolies or that result from
them.
Robinson-Patman Act
This Act prohibits anti-
competitive practices by
producers, specifically price
discrimination. The need for
the Robinson-Patman Act
grew out of practices in which
chain stores were allowed to
purchase goods at lower
prices than other retailers.
The Act prevented unfair
price discrimination for the
first time by requiring that
the seller offer the same price
terms to customers at a given
level of trade. Similar to the
Sherman Act, the Robinson-
Patman Act also provides for
criminal penalties.
Per Se Rule
Per Se Rule: Conduct that is almost always
anticompetitive
• Most Per Se offenses involve an agreement between
competitors or potential competitors.
• What is an agreement between competitors?
– Doesn’t have to be, rarely is in writing.
– It is any understanding, written, oral, or a course of
dealing, with competitors to engage in illegal conduct.
– Doesn’t matter if conversations are casual, off-the-
record, confidential, at lunch, a trade association or
resort, in a report or e-mail.
– Can result in jail, fines to individuals and companies,
significant civil damages and legal fees.
Per Se Illegal Activity
Per Se Offenses Include:
Price Fixing: Can involve Tying Arrangement: the
agreements among competitors to practice of making the sale of
raise prices, fix or eliminate discounts, one good (the tying good) to
fix credit terms, allowances and other the customer conditional on
similar activities. the purchase of a second
Market Allocation: agreements in distinctive, unrelated good (the
which competitors divide markets tied good).
among themselves. In such schemes,
competing firms allocate specific
customers or types of customers,
products, or territories among
themselves. For example, one
competitor will be allowed to sell to,
or bid on contracts let by, certain
customers or types of customers. In
return, he or she will not sell to, or bid
on contracts let by, customers
allocated to the other competitors. In
other schemes, competitors agree to
sell only to customers in certain
geographic areas and refuse to sell to,
or quote intentionally high prices to,
customers in geographic areas
allocated to conspirator companies.
Price Discrimination
Price discrimination When is it illegal?
exists when sales of If competition is likely to
goods of “like grade and be injured by the price
quality” (i.e., identical, or discrimination; and
nearly so) are transacted The different prices are
at different prices from not cost justified; or
the same provider to The lower priced sales
customers who are
cannot be justified on
“similarly situated.”
meeting competition
grounds.
What is the competition that is injured by price discrimination?
Competition between the seller and its direct
competition (primary line – generally requires seller
to be selling at below cost – like predatory pricing);
Competition between the favored buyer and his
competitor (a wholesaler and his competitors)
(secondary line);
Competition between a customer of the favored
buyer and his competitors (tertiary line).
Seller can be sued by any of these disfavored parties,
but these claims are very difficult to prove.
Penalties
Sherman Act:
Civil: Injunction, treble damages.
Clayton Act:
Criminal: (Per Se violations only): Up to 10 years in prison for
individuals and up to $1,000,000.00 in penalties for individuals and
$100,000,000.00 for corporations (FY 2007 – defendants sentenced
to record 31,391 jail days, $630 million in fines).
Injunction, divestiture.
FTC Act:
Injunction, cease and desist orders.
Robinson-Patman Act:
Criminal: No enforcement by DOJ since 1960s.
Civil: Injunction, cease and desist orders, treble damages.
