Many consumers have never heard of anti-trust laws, but enforcement of these laws saves consumers millions and even billions of dollars a year. Anti-trust laws – also referred to as “competition laws” – are statutes developed by the U.S. Government to protect consumers from predatory business practices by ensuring that fair competition exists in an open-market economy. Anti-trust laws are applied to a wide range of questionable business activities, including but not limited to:
- Market allocation: Both companies mark there territory and don’t enter the other’s.
- Bid rigging: There are three companies in an industry, and all three decide to quietly operate as a cartel. Company 1 will win the current auction, so long as it allows Company 2 to win the next and Company 3 to win thereafter. Each company plays this game so that all retain current market share and price, thereby preventing competition.
- Price fixing: There are only two companies in industry, and both the products are so similar that the consumer is indifferent between the two except for price. In order to avoid a price war, they decide to sell the products at the same price to maintain margin, resulting in higher costs than the consumer would otherwise pay.
The Federal Government enforces three major Federal antitrust laws, and most states also have their own. Essentially, these laws prohibit business practices that unreasonably deprive consumers of the benefits of competition, resulting in higher prices for products and services.
The three major Federal anti-trust laws are:
- The Sherman Antitrust Act
- The Clayton Act
- The Federal Trade Commission Act.
The following information on these laws comes from the Anti-trust Enforcement and the Consumer guide.
The Sherman Anti-trust Act:
This Act outlaws all contracts, combinations, and conspiracies that unreasonably prevent interstate and foreign trade. This includes agreements among competitors to fix prices, rig bids, and allocate customers, which are punishable as criminal felonies.
The Sherman Act also makes it a crime to monopolize any part of interstate commerce. An unlawful monopoly exists when one firm controls the market for a product or service, and it has obtained that market power, not because its product or service is superior to others, but by suppressing competition with anti-competitive conduct.
The Act, however, is not violated simply when one firm’s vigorous competition and lower prices take sales from its less efficient competitors; in that case, competition is working properly.
The Clayton Act:
This Act is a civil statute (carrying no criminal penalties) that prohibits mergers or acquisitions that are likely to lessen competition. Under this Act, the Government challenges those mergers that are likely to increase prices to consumers.
All persons considering a merger or acquisition above a certain size must notify both the Antitrust Division and the Federal Trade Commission. The Act also prohibits other business practices that may harm competition under certain circumstances.
The Federal Trade Commission Act:
This Act prohibits unfair methods of competition in interstate commerce, but carries no criminal penalties. It also created the Federal Trade Commission to police violations of the Act.
The Department of Justice also often uses other laws to fight illegal activities, including laws that prohibit false statements to Federal agencies, perjury, obstruction of justice, conspiracies to defraud the United States and mail and wire fraud. Each of these crimes carries its own fine and imprisonment term, which may be added to the fines and imprisonment terms for antitrust law violations.
Provisions and Guidelines of the Antitrust Division: