Sherman Antitrust Act
What is Sherman Antitrust Act?
The Sherman Antitrust Act is the first United States antitrust law: Section 1 bans agreements that restrain trade and Section 2 bans monopolizing.
Congress passed it in the eighteen nineties, when large industrial trusts were combining whole industries under single boards of directors. Section 1 reaches agreements, namely contracts, combinations and conspiracies in restraint of trade, which covers price fixing, bid rigging and market division among competitors; the most direct of these are illegal in themselves, with no inquiry into whether the price agreed was reasonable. Section 2 reaches single-firm conduct, making it an offense to monopolize or attempt to monopolize, which requires both monopoly power and conduct that acquires or maintains it by excluding rivals. Violations can be criminal, carrying fines and prison for individuals, as well as civil. The statute's language is deliberately broad, so its meaning has come from decades of court decisions rather than from detailed rules, which is why the Clayton Act was later added to name specific practices.
Sherman Antitrust Act: a worked example
Section 1 cases are usually cartels, and the lysine conspiracy is the textbook one. Executives at Archer Daniels Midland met with foreign producers of the feed additive lysine, agreed on the price they would charge and the volume each would sell, then compared sales figures to police the deal. An informant recorded the meetings for the FBI, the company pleaded guilty and paid a fine of about $100 million, and several executives went to prison. The case shows that Section 1 is enforced criminally, and that a price-fixing agreement is illegal whether or not the conspirators had enough power to make it stick.
The mistake students make with sherman antitrust act
Students believe the Sherman Act outlaws monopolies and high prices. It outlaws conduct: agreeing with competitors to restrain trade under Section 1, and monopolizing under Section 2. A single firm that becomes dominant by building a better product and then charges a high price has violated nothing, while two tiny firms that agree on a price have violated Section 1 even though neither has any real market power.
Sherman Antitrust Act questions
What does Section 1 of the Sherman Act prohibit?
Section 1 prohibits agreements between separate businesses that restrain trade, most clearly competitors agreeing to fix prices, rig bids, or divide up customers and territories. It requires an agreement, so a single firm acting entirely on its own cannot violate Section 1.
What does Section 2 of the Sherman Act prohibit?
Section 2 prohibits monopolizing, attempting to monopolize, or conspiring to monopolize a market. Proving monopolization takes two things: monopoly power in a defined market, and conduct that gained or protected that power by excluding rivals rather than by competing on the merits.
What is the difference between the Sherman Act and the Clayton Act?
The Sherman Act bans restraints of trade and monopolizing in broad language and can be enforced criminally, while the Clayton Act names specific practices such as anticompetitive mergers, tying and exclusive dealing, and stops them before a monopoly forms. The Clayton Act is civil and preventive; the Sherman Act generally applies once the restraint exists.
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