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Sherman Antitrust Act

Sherman Antitrust Act

Sherman Antritrust Act is a United States federal statute that prohibits activities that restrict interstate commerce and competition in the marketplace.

Overview

The Sherman Antitrust Act is the United States' first antitrust law. It was first passed by the United States Congress in 1890 as a "comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade." The Act was proposed in response to the rise of large monopolies and trusts at the end of the nineteenth century.

Named for Senator John Sherman of Ohio, chairman of the Senate finance committee and secretary of the treasury under President Rutherford B. Hayes, the act passed the Senate by a vote of 51–1 on April 8, 1890, and the House by a unanimous vote of 242–0 on June 20, 1890. President Benjamin Harrison signed the bill into law on July 2, 1890.

The Sherman Antitrust Act was amended by the Clayton Act in 1914, and is codified in 15 U.S.C. §§ 1-38.

Function

The Act outlaws "every contract, combination, or conspiracy in restraint of trade," and any "monopolization, attempted monopolization, or conspiracy or combination to monopolize." The Act contains two main substantive provisions:

Section 1: Agreements in Restraint of Trade

This section prohibits “[e]very contract, combination . . . , or conspiracy in restraint of trade or commerce.” Under this section, some contracts are per se illegal, including price-fixing and market-division agreements among rivals, because they almost always harm competition.

Section 2: Monopolization

This section prohibits monopolization of “any part of the trade or commerce among the several States, or with foreign nations.” Under United States Supreme Court interpretation, mere possession of monopoly power and the charging of monopoly prices does not constitute anticompetitive behavior. Instead, an entity violates this section of the Act only if: (1) the entity possesses monopoly power in a properly defined market, and (2) the entity acquires or maintains that power through anticompetitive conduct (as opposed to legitimate commercial behavior).

Interpretation by the Courts

While the Sherman Antitrust Act was designed to restore competition, loose wording and undefined critical terms (such as "trust," "combination," "conspiracy," and "monopoly") have required interpretation by the courts. The following list describes some of the tests employed by courts:

  • Rule of Reason. The Rule of Reason test is a totality-of the-circumstances approach that examines whether a challenged restraint postively or negatively impacts competitive overall.
  • Profit Sacrifice. Under the Profit Sacrifice test, conduct is deemed anticompetitive when it involves a sacrifice of short-term profits with the expectation that those profits will be recouped when rival entities are eliminated from the market.
  • No Economic Sense. Under the No Economic Sense tests, conduct is deemed anticompetitive when it (1) has a tendency to eliminate competitors and (2) makes no economic sense but for that tendency.
  • Equally Efficient Competitor. The Equally Efficient Competitior test prohibits practices that are likely to exclude equally or more efficient competitors from a market.
  • Predatory Pricing. Predatory pricing includes charging below-cost prices to drive competitors from a market.
Enforcement and Penalties

The Sherman Antitrust Act is enforced by the Antitrust Division of the Department of Justice and the Federal Trade Commission. Private plaintiffs may also seek relief. The Sherman Antitrust Act imposes criminal penalties of up to $100 million for corporations. For individuals, a $1 million penalty and ten years in prison may be imposed.

Timeline

Further Resources

Title
Author
Link
Type
Date

Antitrust Laws

Web

Antitrust Laws (Competition Laws) Explained in One Minute: The Sherman Antitrust Act, FTC Act, etc.

Web

March 1, 2020

Antitrust Laws (Competition Laws) Explained in One Minute: The Sherman Antitrust Act, FTC Act, etc.

Web

March 1, 2020

Guide to Antitrust Laws

Alexandra Twin

Web

November 19, 2003

News

Title
Author
Date
Publisher
Description
Matt Stoller and Shaoul Sussman
December 11, 2020
the Guardian
America broke up logging companies in the 1840s, Standard Oil in the 1910s, and AT&T in the 1980s. It's time to take on big tech

References

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