In business, competition is a crucial element that presents benefits for both consumers and companies. Under these circumstances, companies are able to introduce new developments and tailor their products and services to suit the requirements of consumers. The markets with imperfect competition suffer from allocative insufficiency and consumer surplus, which has an adverse impact on society. This paper aims to examine the anti-trust laws in the US, identify their purpose, and provide several examples of their application.
Goals and Scope of Anti-Trust Laws
The anti-trust laws in the US regulate the connections between companies in different industries. The Federal Trade Commission states that the purpose of antitrust laws is to ensure that “there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up” (“The Antitrust Laws” par. 1). The first law with this purpose was passed in 1890, and it was titled the Sherman Act. Its primary goal was to preserve fair competition in the country. Other legislation that followed the Sherman Act includes the Federal Trade Commission Act (FTC) and the Clayton Act. The three legislations forbid companies from forming cartels, which are companies that collaborate to impact the price of their product on the market. In such cases, these organizations are capable of maximizing their revenue. Another form of unfair competition is a monopoly, which describes conditions under which one manufacturer serves as a single supplier of a product or service.
However, it should be noted that the laws mentioned above do not solely focus on cartels or monopolies. One fundamental objective that guided their development is the merger between different organizations or acquisitions. While in general, this practice is not forbidden, deals that can significantly reduce competition in a specific industry are against the law. The courts have to review each particular case to determine if a merger or acquisition was carried out correctly, while the companies have to notify the government about similar arrangements. More specifically, the scope of Clayton’s Act outlines practices in which individuals make decisions for rival companies as unlawful.
Finally, the Robinson-Patman Act aims to prohibit changing the prices of products for different customers. Therefore, the scope of this legislation is any fluctuation of the cost that is not substantiated by the market demands (“Price Discrimination: Robinson-Patman Violations”). The goal is to ensure that sellers, for instance, manufacturers, do not alter their pricing strategies to harm the competition in the same geographic region.
Applications of Laws
One example of these laws being used to protect competition in the market is the case of AT&T. In the 1970s, the issue of AT&T forming a monopoly and using profits from it to subsidize its networks was brought to court (“Infamous Antitrust Cases”). It should be noted that for a long time AT&T was the primary telecommunications company within the US, which provided it with a possibility to interfere in the market.
The result of the anti-trust court proceedings that targeted AT&T was a requirement to separate the company into eight subsidiaries. Each was supposed to work in one specific region of the country. This case illustrates the application of the three anti-trust laws mentioned above because AT&T was accused of altering market conditions to become the sole supplier of telecommunication services in the country, which violates the Sherman Act and FTC.
Recently, the legislation forbidding unlawful mergers was applied to the two companies in the airline industry. AMR Corp. had to file for bankruptcy in 2013, and as part of the process was forced to sell its asset the airline, to American Airlines (“Merger of American Airlines and US Airways”). This action would have resulted in the emergence of the biggest airline company within the country. In case American Airlines was successful in the acquisition of AMR, the former would have enough market presence to set prices that differ from those of the competitors. Thus, companies in the airline industry would be unable to continue their operations, which would lead to fewer choices for passengers. Due to these reasons, the case was investigated by the US Department of Justice.
It should be noted that this specific case is an illustration of difficulties in applying the antitrust laws. It is due to the fact that corporations are often faced with difficult decisions due to the specifics of the legal system that aims to protect competition. In this case, the companies received approval for a merger and continued their operations (“Merger of American Airlines and US Airways”). Thus, the Department of Justice was unable to prove that under the three laws outlined above the AMR and American Airlines aimed to create a monopoly.
Overall, the anti-trust laws in the US serve the purpose of protecting both businesses and consumers and ensuing fair competition. The primary laws that exist in the state are the Sherman Act, the Federal Trade Commission Act (FTC, and Clayton Act, which focus on cartels, monopolies, and unfair mergers. Robinson-Patman Act emphasizes price discrimination and ensures that firms do not lower their prices to harm their completion. This paper also presents two important cases of applying the laws in question.
- “Infamous Antitrust Cases”. HG, n.d. Web.
- “Merger of American Airlines and US Airways After Bankruptcy May Face Anti-Trust Law Issues”. HG, n.d. Web.
- “Price Discrimination: Robinson-Patman Violations”. Federal Trade Commission, n.d. Web.
- “The Antitrust Laws”. Federal Trade Commission. n.d. Web.