Antitrust practices refer to the laws and actions designed by the government for the purpose of preventing monopoly and promoting competition among the firms in order to achieve allocative efficiency . During the aftermath of the American Civil War between 1861 and 1865, several regional markets gained the opportunity of expanding into the national market as a result of improved transportation, industrialized methods of production and advanced corporate structures. As a result, by the 1880s, dominant firms emerged in several industries, including sugar, coal, petroleum, tobacco and many others . These firms set up certain decision groups, known as trusts in order to maintain a control in the market. However, due to the establishment of trusts, dominant firms employed various tactics in consolidating the industries and charging higher prices to the customers, which in turn made farmers and small owners of industries vulnerable to the power of large monopolists. Therefore, antitrust legislations emerged in the market in order to control the economic behavior of the monopolies.
It is important to consider the social costs associated with existing market structures in addition to the social costs associated with the monopoly in the absence of competition. Antitrust practices play a major role in influencing the decisions of managers and market behavior. As a measure of minimizing the uncertainty caused by antitrust policies, the rules should depend on economic theories and applicable to monopolistic firms. Various costs generated by the antitrust policies include not only costs due to government investigations, but also due to private antitrust litigations . In addition to direct costs, various indirect costs associate with antitrust behavior. However, these are identical to direct costs and include opportunity costs and annual costs of enforcing antitrust practices.
Economists consider non-pecuniary costs as a preference to the pursuit to the lower costs and higher profits, although such behavior fails to persist in the market. Some of the pecuniary costs related to antitrust behavior are price fixing and bid rigging, while the non-pecuniary costs include monopolies and customer allocation . Price fixing is a result of competing sellers agreeing on prices charged for various goods and services. It restricts the sale of goods below a certain level of price. Bid rigging is a result of firms agreeing to bid on goods and services so that the assigned firm submits the winning bid. In this scenario, various firms agree in advance about the victory of a company and place the bid to ensure the win of the company. On the other hand, non-pecuniary costs, such as monopolies result due to the control of one firm over another in order to suppress the competition of the market. Customer allocation refers to the agreement of competitors in the splitting of customers in order to either minimize or eliminate the competition.
The Sherman Act of 1890 is one of the significant cornerstones of the antitrust laws and offers two major provisions. The act outlaws the restraints of trade including illegal fixing of prices, division of markets and monopolization . It also deems individuals who involve in any form of monopolization or conspiracies related to monopolization. The attorney generals of all the states have the power of filing antitrust suits on the firms or individuals violating the act. The state courts also have the right to issue injunctions for prohibiting such anticompetitive practices. In some cases, courts also have the authority of imposing fines and imprisoning the violators. The Sherman Act deems what is legal and what is illegal in issues related to monopoly and monopolistic markets . However, early interpretations of the act by courts limited its scope and created ambiguities of the law. The act also demands the government about the antitrust statements in an explicit way.
The following are a few more acts related to antitrust practices and policies. The Clayton Act of 1914 is an interpretation of the Sherman Act. Four sections mentioned in the Clayton Act are an extension of the Sherman Act. The major purpose of the act is outlawing price discrimination, prohibiting tying contracts, acquisitions of stocks and formation of directorates . The Federal Trade Commission Act of 1914 is another act, which investigates unjust competitive practices and holds public hearings. The act also issues cease-and-desist orders in issues that involve unfair competition. The Wheeler-Lea Act of 1938 is an amendment of the FTC Act and establishes FTC as an independent agency of antitrust . Another important act is the Celler-Kefauver Act of 1950, which is an amendment of the Clayton Act prohibit the merging of competing firms. The act also prohibits firms from attaining the physical assets of other firms in the case of reduced competition.
References
Boyes, W., & Melvin, M. (2015). Economics. Boston, MA: Cengage Learning.
Mcconnell. (2012). Economics. New York, NY: Tata McGraw-Hill Education.
Wachtel, H. M. (2013). Labor and the Economy. Elsevier.
Ward, P. C. (2014). Federal Trade Commission: Law, Practice and Procedure. Law Journal Press.
