Antitrust

Antitrust law concerns the limits placed by governments on the free operation of markets, usually intended to prevent the abuse of market power by companies. In some jurisdictions it is referred to as competition law or anti-monopoly law.

Theoretical Groundings of Competition Policy

Competition policy is premised on the belief that competition has a positive effect on free markets, and should be encouraged, and that monopoly has corrupting political effects that must be avoided.

Where many manufacturers provide the same product, each will try to increase its sales by finding ways to make its own product more attractive than those of its competitors. Some manufacturers will try to sell the product at a lower cost, while others will try to improve the quality of the product, or develop innovative new features to attract consumers.

However, if one manufacturer controls the entire market for a product, or if all manufacturers cooperate in controlling such a market, then the incentive to reduce prices and improve quality disappears. Furthermore, a manufacturer or group of manufacturers with sufficient power over the market can prevent new competitors from entering the field, either by acquiring the competitor, or by reducing prices just long enough to drive the competitor out of business.

Historically, American antitrust law was premised on the fear that the temptation for a corporation to seek and use government power to protect its monopoly profits (called "rents") would corrupt and injure the political process. Economist George Stigler and the Chicago School specificially pointed to the dangers of "rent seeking" as a corruption to be vigilantly opposed.

The History of Antitrust law

English law

One of the earliest significant antitrust cases was that of Darcy v. Allein [The Case of Monopolies], 77 Eng. Rep. 1260 (K.B. 1603), in which a court of England voided a grant by Queen Elizabeth purporting to give the appellant a monopoly over the importation and sale of playing cards throughout England. The Darcy court found the grant to be against public policy for reasons including the likelihood that the monopolist would be inclined to rest on a shoddy product, and that others in the business of making playing cards would be unfairly rendered unemployed. An earlier case reports an action by Parliament resulting in the brief imprisonment John Pecche for the purported abuse of "a patent giving him the exclusive right to sell sweet wines at retail in London." 50 Edw. III, No. 33 (1376).

The Darcy court referenced even earlier prohibitions against monopolization, writing:

in Darcy seems to suggest that such regulations go back thousands of years, stating (in Latin, as translated by Edward Coke):

For we read in Justinian that monopolies are not to be meddled with, because they do not conduce to the benefit of the common weal but to its ruin and damage. The civil Laws forbid monopolies: in the chapter of monopolies, one and the same Law. The Emperor Zeno ordained that those practicing monopolies should be deprived of all their goods. Zeno added that even imperial [p]rescripts were not to be accepted if they granted monopolies to anyone.

England enacted a statutory prohibition on monopolies in 1624, "An Act Concerning Monopolies and Dispensations of Penal Laws and the Forfeitures Thereof" [Statute of Monopolies], 1624, 21 Jam., ch. 3 (Eng.). U.S. states enacted individual prohibitions against monopolies as early as 1814, with the General Laws of the Colony and Province of Massachusetts Bay 170 (1814) stating that "there shall be no monopolies granted or allowed among us but of such new inventions as are profitable to the country, and that for a short time".

Contemporary Antitrust Laws

Most countries have enacted a collection of laws designed to punish anti-competitive conduct conduct, particularly conduct that is seen to burden consumers with artificially high prices, prevent increases in the quality of goods, prevent useful innovations, and artificially induce the failure of competing businesses.

Certain specific behaviors have been identified as evidencing an intent to quell competition. These include monopolizing (attempting to acquire competitors, and thereby become the only player in the market); price fixing (agreements between competitors that set prices in the same way a monopolist would); predatory pricing (reducing prices below the cost of production long enough to drive competitors out of the marketplace, and then recouping those losses with artificially high prices); group boycotts (agreements between competitors to boycott particular suppliers of materials in order to promote a competing supplier); and tying arrangements (allowing consumers to purchase a non-competitive product only if they also agree to purchase a competitive product).

Antitrust Law in the United States

The Sherman Act

The United States enacted one of the most significant pieces of antitrust legislation in 1890, with the passage of the Sherman Antitrust Act (Sherman Act, 1890, ch. 647, Template:USStat, Template:Usc). This was the first United States federal government action to limit monopolies, and is the oldest of all U.S. antitrust laws.

The Sherman Act provides:

1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.
2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony [. . . ]"

The Act put responsibility upon government attorneys and district courts to pursue and investigate trusts, companies and organizations suspected of violating the Act. Although not used in court cases for some years, Theodore Roosevelt used the Act extensively in his antitrust campaign, managing to divide the Northern Securities Company. It was further used by President Taft to break up the American Tobacco Company, which had a monopoly over the sale of tobacco in the United States.

Later amendments to the Sherman Act addressed particular anticompetitive practices such as predatory pricing in greater detail, and established both hightened penalties for infractions and exceptions to its scope.

Exceptions from Antitrust Regulation

Exceptions exist to the antitrust regimes, most notably regarding patents and copyrights. Each of these doctrines give the owner a legal monopoly over the invention or the work of authorship at issue. Furthermore, because the owner of a patent has the legal right to monopolize the invention to which the patent applies, it may also license the invention to competitors and control the prices that those competitors charge. Another legal form of anticompetitive conduct is state action, as a government may legally choose to monopolize a particular product, or to permit private actors to monopolize that product. Finally, use of the legal system in a way that harms competitors is legal, so long as the legal claims are brought for the legitimate vindication of rights, rather than as a mere tool of harassment.