Business Law (part 10)

Government Regulation of Business

(part B)

 by

 Charles Lamson

 Antitrust

One of the ways government regulates businesses is by means of antitrust laws that seek to promote competition among businesses.

The most important antitrust law, the federal Sherman Antitrust Act, declares that, "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 illegal." It further provides that anyone who monopolizes or tries to obtain a monopoly in interstate commerce is guilty of a felony.

The Sherman Act applies to commerce or trade between two or more states and to buyers and sellers. Most states also have antitrust laws, very similar to the Sherman Act, which prohibits restraint of trade within their states.

In interpreting the Sherman Act, the federal courts have said it prohibits only those activities that unreasonably restrain trade. The rule of reason approach means that the courts examine and rule on the anticompetitive effect of a particular activity on a case-by-case basis. The effect of the activity, not the activity itself, is the most important element in deciding whether the Sherman Act has been violated.

However, some activities are illegal under the Sherman Act without regard to their effect. Called per se violations, they include price-fixing, group boycotts, and horizontal territorial restraints.

Many activities may lessen competition. Obviously, every business firm seeks to have cooperation within its firm. This is the basis of economic productivity, and this is lawful under the antitrust laws. only when separate businesses make a commitment to a common plan or some type of joint action to restrain trade does an antitrust violation occur.

In addition to the Sherman Act, the federal government has enacted three other important antitrust laws. These include the Clayton Act, the Robinson-Patman Act, and the Federal Trade Commission Act.

The Clayton Act amends the Sherman Act by prohibiting certain practices if their effect may be to substantially lessen competition or to end or to tend to create a monopoly. The Clayton Act prohibits price discrimination to different purchasers where price difference does not result from differences in selling or transportation cost. The Clayton Act also prohibits agreements to sell on the condition that the purchaser shall not use goods of the sellers competitors, ownership of stock or assets in a competing business where the effect may be to substantially lessen competition, and interlocking directorates between boards of directors of competing firms. 

The Robinson-Patman Act, an amendment to the Clayton Act, prohibits price discrimination generally and geographically for the purpose of eliminating competition. It also prohibits sales at unreasonably low prices in order to eliminate competition.

The Federal Trade Commission Act prohibits unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce. In addition, this law prohibits false advertising. To prevent these unfair and deceptive practices, a federal administrative agency, the Federal Trade Commission, was established. 

*SOURCE: LAW FOR BUSINESS, 15TH ED., 2005, JANET E. ASHCROFT, J.D., PGS. 42-43*

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