Antitrust laws in the United States – commonly known as competition laws outside of the U.S. – have evolved over the years with an ongoing effort to maintain and support fair competition. The major statute which concerns antitrust law is the Sherman Antitrust Act, originally enacted in 1890. One of the primary goals of the Sherman Act is to investigate, restrict, and reduce monopolies.
A monopoly exists when one person, group, or company is the exclusive supplier of a particular type of product. This means that one entity controls the supply of a good or service, giving that entity an enormous amount of power in negotiating the provision of that good or service. Ultimately that leads to unnecessarily high prices.
For example, American Telephone & Telegraph (AT&T) was a monopoly during much of the twentieth century in the United States in which the company held a monopoly on phone service. Indeed for seventy years, AT&T maintained the slogan: “One Policy, One System, Universal Service.” The company continued to grow in strength as it began buying smaller telephone companies such as Western Union Telegraph. While the government allowed the monopoly for many years, it finally broke up the company in 1984, with the division of AT&T into seven companies, of which only three remain today: AT&T, Verizon and Qwest.
Another, more recent example of a monopoly is Microsoft. Microsoft was sued by the United States Department of Justice under the Sherman Act in 1998. The suit arose out of Microsoft bundling its operating system (Windows) with its web browser (Internet Explorer). A consumer had to purchase competing web browsers separately while Internet Explorer came included, and there were concerns that Microsoft was manipulating its system so that it would intentionally work slower with competing web browsers. While the Court initially required a break-up of the company, Microsoft settled with the Department of Justice, requiring Microsoft to share its application programming interfaces with third-party companies.
However, holding a dominant position in a field or market is not, alone, illegal under Sherman. For instance, if a person is the only one skilled enough or smart enough to create or provide a specific good or service, that is not the kind of monopoly that is restricted. However, the Sherman Act does make it illegal for a company to abuse its power in such a position. The monopoly or trust (where multiple parties agree to an exclusive course of action) must take some action to make it impossible for others, who would otherwise be able, to compete in providing the good or service.
Thus, an illegal trust exists when a group of companies or people come together and form an agreement which could harm competition. For instance, if all car dealers in the country agreed that they would not sell any new cars for less than $80,000, that would unfairly increase the cost to consumers and would constitute an antitrust violation. As the Supreme Court has explained, the purpose of the Sherman act “is not to protect businesses from the working of the market; it is to protect the public from the failure of the market” and it is directed against conduct which “unfairly tends to destroy competition.”
Violations under the Sherman Act are difficult to clearly recognize because of the fine line between fair competition and unfair antitrust violations. There are important, competing interests at stake: the freedom a person or company has to run its own business free from government intervention along with the interests of the consumer and in having a fair competitive environment.
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