Guide to Antitrust Laws (Introduction)



FEDERAL TRADE COMMISSION

Introduction

The United States economy is one of the strongest and most productive in the world. Although the credit for our economic success goes to the hard work and creativity of American workers and businesses, it is our national policy of competition that spurs and rewards that work and creativity. History has shown that societies that promote vigorous competition among private companies have lower prices, better products, and greater consumer choice.

The antitrust laws are the basis of this national policy. These laws, enforced by both the federal and state governments, require companies to compete in the marketplace. The Sherman Act, the first federal "antitrust law," was enacted in 1890, at a time when there was enormous concern about "trusts" -- combinations of companies that were able to control entire industries. Since then, other laws have been enacted to supplement the Sherman Act, including the Federal Trade Commission Act and the Clayton Act (1914). With some revisions, these laws still are in effect today. They have the same basic objective: making sure there are strong economic incentives for businesses to operate efficiently, keep prices down, and keep quality up.

When consumers decide to purchase a product or service -- a car, a new refrigerator, or prescription drugs, for example -- the goal of the antitrust laws is to make sure their choices are not restricted unreasonably. Consumer choice is a powerful incentive for the sellers of any products to keep their prices low and their quality high. When the antitrust laws are vigorously enforced, businesses must respond to what consumers want. A business that ignores consumer wishes -- by refusing either to keep prices competitive or to offer products or services that consumers want -- loses its competitive position in the marketplace.

To ensure consumer choice, the antitrust laws set two basic requirements: companies cannot agree to limit competition in ways that hurt consumers; and a single company cannot monopolize or try to monopolize an industry through unfair practices.

The antitrust laws prohibit certain kinds of agreements among businesses. They require that each company establish prices or other terms on its own, without agreeing with a competitor or supplier. For example, automobile dealers in a city cannot agree on the price that they charge for cars. Domestic airlines cannot agree about how many flights they will offer from a particular city. Internet service providers cannot agree on the monthly terms for customers. And a clothing retailer cannot agree with a manufacturer about the minimum price the retailer will charge for clothing.

Another type of agreement among competitors involves an outright combination or merger of the companies. These agreements to merge can be illegal if they significantly undermine competition in the marketplace. When two large retail chain stores that sell discount office supplies proposed to merge recently, the FTC challenged the move, claiming that the merger would lead to higher prices for consumers. The court agreed with the FTC and prohibited the merger.

In some cases, a single company can acquire enough power unfairly to dominate a market. For example, if an airline -- for no reason other than to protect its market position -- makes sure that no other airlines can fly a particular route, the airline will be able to raise prices well beyond competitive levels. A manufacturer that acquires all its competitors might be able to do the same thing. In these cases, the companies would have violated the antitrust prohibition on monopolizing a market. A court would order the company to stop engaging in these unfair practices, and might also require the company to pay damages to consumers who have been harmed. In some cases, a court might even break up the monopoly into smaller companies.

If all the major drug companies agree privately to set identical prices, the agreement would be a clear violation of the antitrust laws. In fact, the people involved probably would go to prison for such a clear and harmful violation. If only all antitrust cases were that clear-cut. The fact is that most antitrust cases are complex and require a detailed and painstaking examination of the facts.

Consider a case where all the companies in a market are charging the same price -- for example, airline fares or prices for grocery products. Are these companies violating antitrust laws? Identical prices can result from vigorous competition as well as from an outright agreement. When uniform pricing results from competition, the situation is legal; when identical pricing results from agreement, it is not. To determine what is really going on, the courts and antitrust enforcement agencies must analyze the facts.

Another complexity: not all agreements among competitors are harmful. Sometimes, cooperation among competitors is useful. Manufacturers of building materials cooperate to establish product specifications. Airlines agree to transfer baggage and accept tickets bought from each other. Are these practices acceptable or antitrust violations? The courts would have to examine the facts to determine if consumers are helped or harmed.

The antitrust laws apply to almost everyone involved in business -- corporations, partnerships, sole proprietorships, individuals, trade associations, professionals such as doctors and lawyers, and some activities of non-profit organizations.

The nation’s antitrust policies have been in effect for over a century. Although there have been disagreements on specific issues, these laws generally have received broad support from leaders across the political spectrum. At the federal level, the antitrust laws are enforced by the Bureau of Competition at the Federal Trade Commission and the Antitrust Division of the Department of Justice. At the state level, they usually are enforced by the State Attorney General. Private parties also can bring antitrust cases to redress illegal injuries.

Like all laws, the antitrust laws depend on effective enforcement. Government authorities often need help from consumers to learn about the facts of a particular case. If you think the antitrust laws are being violated, we hope you will contact one of these agencies.

   --Robert Pitofsky, Chairman

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