The 1890 Sherman Anti-trust Act is identified as the first and most critical of all U.S antitrust laws. The act, which was signed into formal law by the then president, Benjamin Harrison was named after its biggest campaigner, John Sherman, who was the Ohio Senator then. The Act explains the primary reasons why consumers are best served by a free trade, without many restrictions. The primary reasons why price fixing among sellers comes with such things as restrictions on output and geographic areas is to create a business environment that does not encourage the presence of monopolies.
According to the proponents of the idea of price fixing, restrictions on quantity and geographic region enable the sellers to practice price discrimination in such a way that favors cartels can be established. Price discrimination is an economic concept concerned with apportioning the market along purchasing powers of different groups (Heyne et al, 2910). The formation of price cartels without limitations on output and geographic area was the cause of nationwide monopolies – a phenomenon that almost paralyzed the U.S economy in the year 1888.
During the late 1800s, the consumers the biggest victims of such price fixing. This caused the sellers to unable to access the average market. This explains the reasons behind price fixing with restrictions. Restrictions on output help tame the volumes of trade carried out by organizations with a competitive advantage and higher production capacity (Heyne et al, 2910). This places all sellers at the same level, where they can easily determine the amount of sales they can make within a certain period, under a certain fixed price. Apparently, the limitations are placed on output and geographical territories so as to do away with the unconstructive effects of having monopolies in the economy.
Reference
Heyne, P., Boettke, P & Prychitko, D. (2010). The Economic Way of Thinking 12th Edition. New York: Prentice Hall
