Antitrust Law
What is Antitrust Law?
Antitrust law is the set of laws that ban price fixing, monopolizing conduct and anticompetitive mergers in order to protect competition in markets.
The economic case is straightforward: a firm with market power charges more than marginal cost and produces less than the efficient quantity, and rivals who agree to fix prices produce the same result without any of them having to earn a monopoly. Antitrust law attacks that on two fronts, conduct (agreements among competitors, and exclusionary behavior by a dominant firm) and structure (mergers that would concentrate a market). Some conduct, such as competitors agreeing on price or carving up customers, is condemned outright; most other conduct is judged under a rule of reason that weighs harm against benefit. In the United States the Department of Justice and the Federal Trade Commission enforce these laws, and private parties can sue as well. The principle to hold on to is that antitrust protects competition, not competitors, so losing customers to a better or cheaper rival is not a violation.
Antitrust Law: a worked example
The Standard Oil case is the standard illustration. The company assembled control of most American oil refining through acquisitions and preferential railroad rates that its rivals could not obtain, and in the early twentieth century the Supreme Court held that it had monopolized in violation of the Sherman Act. The remedy was structural: the trust was dissolved into more than thirty separate companies, several of which became major oil firms in their own right. The case shows both halves of antitrust practice, a finding about conduct and a remedy aimed at structure.
The mistake students make with antitrust law
Students think antitrust law makes it illegal to be a monopoly or to hold a large market share. Holding monopoly power is lawful if it came from a better product, better management or historical accident; what is unlawful is getting or keeping it through conduct that excludes rivals for reasons other than efficiency. Separately, agreeing with competitors to fix prices is illegal no matter how small the firms involved are.
Antitrust Law questions
What does antitrust law prohibit?
Antitrust law prohibits agreements among competitors to fix prices, rig bids or divide markets, conduct by a dominant firm that excludes rivals without a legitimate business reason, and mergers whose likely effect is to substantially lessen competition. It does not prohibit being large, being successful, or charging a high price on your own.
Who enforces antitrust law in the United States?
Two federal agencies enforce American antitrust law: the Antitrust Division of the Department of Justice, which can bring criminal cases, and the Federal Trade Commission, which proceeds civilly. State attorneys general and private parties harmed by a violation can also sue.
Is having a monopoly illegal?
Having a monopoly is not illegal by itself. The offense is monopolization, which requires monopoly power plus conduct that acquired or protected it by excluding competitors rather than by out-competing them, such as tying up the supply or the distribution rivals need to reach customers.
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