Overview of Antitrust

antitrust laws

Laws that promote competition and prevent monopoly

Antitrust laws are designed to promote competition and prevent unwarranted monopoly. By itself, large firm size or market dominance is no offense; it is any unfairly gained competitive advantage that is against the law. The primary objection to monopolies, cartels, and other restraints of trade is that they injure consumers by increasing prices. High monopoly prices also curtail consumption and thereby reduce consumer welfare. A further objection to monopoly is that unchecked economic power stiffles innovation and often fails to provide necessary incentives for operating efficiency. As British economist John Hicks once wrote, "The best of all monopoly profits is a quiet life." Thus, complacency on the part of monopolists can impede economic progress.

The choice between pure competition and monopoly is easy. Unfortunately, that is seldom the decision facing those charged with antitrust enforcement. Antitrust concerns tend to arise in industries where firms have some market power, but also face competition. In such instances, mergers and restrictive practices that may create or enhance market power may also promote efficiency and benefit consumers. Antitrust enforcement is made difficult by the need to identify corporate conduct whose primary effect is to lessen competition and harm consumers.

There is no single antitrust statute in the United States. Federal antitrust law is based on two important statutes—the Sherman Act and the Clayton Act—and their amendments. An important characteristic of these laws is that they broadly ban, but never define, "restraints of trade," "monopolization," "unfair competition," and so on. By never precisely defining such key terms, the statutes left the courts to decide the specific legality or illegality of various busi ness practices. Because of this, many principles in antitrust law rest on judicial interpretation. Individual court decisions, called case law, and statutory standards, called statutory law, must be consulted to assess the legality of business behavior.

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