Many countries have various laws designed to protect consumers and control how businesses and organizations run their operations.
The objective of such laws is to offer an equal environment for other businesses in the same industry and prevent them from amassing excessive power over their competitors.
In other words, antitrust laws are designed to prevent businesses from playing dirty for the purposes of making profits.
In the United States, the first antitrust law known as the Sherman Act was passed by Congress in 1890.
Also referred to as competition laws, antitrust laws are aimed at protecting consumers from unscrupulous business people. The laws have evolved with time as the business environment also changes.
Antitrust laws are used in a broad range of suspicious business activities such as bid-rigging, market allocation, monopolies, and price-fixing among others.
If there were no such laws, then consumers or customers wouldn’t have the advantage of choosing to purchase products and services from different competitors. Besides, consumers would have no option but to pay higher prices for products and services from a few monopolies.
Below are some of the activities controlled by antitrust laws:
Market allocation refers to an unlawful strategy where two entities decide to concentrate their business operations on particular geographical areas or types of customers. Market allocation is sometimes referred to as a regional monopoly.
A good exaple is when a company runs its operations in the southeast while another operates in the North East. The two companies can turn into a de facto monopoly by keeping other businesses from setting up operations within those two areas.
Company A will agree only to operate in the SouthEast region without entering the North East region where company B operates.
The Federal Trade Commission (FTC) in 2001 charged FMC Corp. for scheming with the Asahi Chemical industry to split the market for microcrystalline cellulose. FTC acted by banning FMC from distributing the product for five years.
Price fixing happens when businesses decide to fix the prices of products and services instead of allowing the market forces to determine it naturally. Several businesses within an industry can collude to fix prices.
For instance, company X and company Y are the only ones in a certain industry and their products are so similar for consumers to distinguish – if not for the price.
For the sake of avoiding a price war, the two companies may opt to sell their products at the same price (to maintain margin).
The people who suffer in the end are consumers who will have to dig deep into their pockets more than they would usually pay.
In 2013, the Department of Justice found Apple to have violated the antitrust law by fixing the prices of ebooks. As a punishment, Apple was asked to pay $450 million.
Many people associate antitrust laws to monopolies. A monopoly refers to a situation where a single company dominates a specific sector or industry and suffocates any other competitor.
One of the famous antitrust laws relating to monopoly was that of Microsoft. The company was accused of monopoly when it forced its web browsers on all computers that had installed its operating system.
What are the three major Antitrust laws?
- The Sherman Anti-trust Act
The main intention of the Sherman Act was to prevent entities from colluding to commit unfair business practices. Violating this act can attract a penalty of up to $100 million for organizations and $1 million for individuals.
- The Federal Trade Commission Act
The Federal Trade Commission Act prohibits all forms of unfair competition. The Supreme Court stipulates that anyone found guilty of violating the Sherman antitrust act is also guilty for violating the Federal Trade Commission Act.
- The Clayton Anti-trust Act
The Clayton Act was formulated to sort out issues not addressed by the Sherman Anti-trust Act.
Such issues include stopping mergers and acquisitions that threaten fair competition, dealing with discriminatory pricing, ensuring that companies planning to merge inform the federal government among others.