Antitrust Details

Governments in developed countries worldwide have implemented various laws and statutes that govern their economies and the way they run. Antitrust laws are a set of rules that encourage competition within the marketplace. This is necessary so that larger companies cannot buy out all of their smaller competitors and be the sole provider of specific services, resulting in inflation of prices. Multiple companies who offer similar services spend their time vying for customers to choose them in the form of marketing, competitive pricing, and other incentives.

If this competition did not exist and one company owned the entire market on a single service or product, they would be able to charge whatever price they deemed sufficient rather than a realistic or enticing price to the consumer. Competition also impacts more than price—quality of goods is another major area that suffers from monopolies and lack of competition.

We credit Canada with being the first country responsible for creating competition laws in modern times, enacted in 1889. In Europe, agreements were made much earlier to the same effect but quickly became outdated, and many countries pushed them to the side during the industrial revolution, as companies and populations grew at rapid rates. Today, the law has been updated to address modern problems and is called the European Competition Law. The United States Congress enacted the first antitrust law in the United States in 1890.

Real-World Example of Antitrust

As the United States developed into a more industrial country, big companies grew to meet the needs of people in different markets. These giant businesses controlled entire industries, such as the railway, food and farming, oil, and steel. U.S. Steel and Standard Oil were the two most well-known “trusts” or major companies at that time, each cornering the market and having little competition. Lack of competition resulted in ridiculously high prices and low quality of service and products. The owners of these companies became extremely rich, while Americans’ poor consumers grew increasingly frustrated with their lack of choice.

Between 1890 and 1914, three laws were written into action to halt these trusts’ disastrous effects on the economy. The first was the Sherman Act, passed in 1890, which said companies could not make agreements with each other about how much they would charge for certain products (therefore continuing to charge inordinately high prices), as it limits competition. In 1914, the Clayton Act was passed, which prevented mergers that were sneaky ways for businesses to continue to knock out competition.

Also, in 1914, the Federal Trade Commission (FTC) Act was created. This act called for a federal agency to oversee and investigate companies and their methods related to competition. The FTC continues to be responsible for doing so today, resulting in jail time and huge fines and penalties for those companies found to violate any of the three primary antitrust laws.