The Beginnings of Antitrust
Updated: Nov 11
What exactly is antitrust? The word “antitrust” comes from “anti-,” meaning “against,” and “trust,” which refers to monopolies, so antitrust describes laws and actions against monopolistic behavior. In order for companies to be prosecuted under antitrust laws, they have to be monopolistic or prevent competition in the free market.
One of the most well-known antitrust behaviors is price fixing. This occurs when a group of businesses sets the price of a certain good, usually above a reasonable price. If people need this good, then they are forced to pay a higher price for it, taking money from the consumer. The New York State Office of the Attorney General gives the following example:
Companies X, Y, and Z manufacture television sets. One night at a social gathering, the Presidents of X, Y, and Z chat about prices and agree that they will each establish a minimum price for their sets. Companies X, Y, and Z and their presidents, because of their agreement, are all involved in price fixing, even if they sell their television sets at various prices above the minimum agreed price.
If all the businesses agree to raise their prices on a product, then the consumers have to pay more, since they can’t go to a different store to buy it at a cheaper price. Other examples of illegal antitrust behaviors include bid rigging, market allocation, resale price maintenance, group boycotts, and tying arrangements. These behaviors all have one thing in common; they favor the producer at the expense of the consumer.
Monopolies have been around since the rise of capitalism, but with the advent of the
Industrial Revolution and advances in communication technology, corporations could dominate an industry throughout the country, presenting serious problems for the free market. The first antitrust legislation that passed was the Sherman Act in 1890, largely due to the populist movement. The Sherman Act outlawed “any agreement to fix prices, limit industrial output, share markets, or exclude competition.” While this was a major achievement in antitrust regulations, the law was effectively useless for a decade and a half because of the Sugar Trust Case. In this case, even though one company controlled 98% of the sugar refining industry, the court ruled 8-1 that the government could not sue them under the Sherman Act because sugar manufacturing did not fall under interstate commerce. The government is only allowed to regulate commerce between the states, which is interstate commerce, while the states regulate commerce within their state, so this declaration voids the entire case. This one interpretation of the Sherman Act would enable companies to avoid prosecution by citing this precedent, ushering in the merger movement.
During the merger movement, between 1895 and 1904, on average, 301 firms disappeared into mergers per year; almost one per day, leading to the creation of hundreds of mega corporations and severe monopolies. While states such as New York and Missouri tried to fight back against this looming problem through both stricter antitrust laws and investigations, it was finally the Roosvelt administration that put an end to the movement. Busting national railroad monopolies and Rockefeller’s famous Standard Oil, Roosevelt’s office paved the way for future antitrust action and legislation, such as the Federal Trade Commissions Act and the Clayton Act.
As the newest generations grow up in a world where big tech conglomerates dominate the landscape, we need to understand the emergence of antitrust legislation. As corporations only grow bigger, we are experiencing a second merger movement, with almost every emerging challenger to an industry being bought up by a conglomerate. We must crack down on this repetition of history through legislation and investigation, or our free markets will disappear.
"Antitrust Enforcement,” Antitrust Bureau Resource Center, New York State Office of the Attorney General, https://ag.ny.gov/antitrust/antitrust-enforcement.
"Sherman Antitrust Act," Encyclopedia Britannica, 16 December 2022, https://www.britannica.com/event/Sherman-Antitrust-Act.
"United States v. E.C. Knight Company," Encyclopedia Britannica, 29 December 2017, https://www.britannica.com/event/United-States-v-E-C-Knight-Company.
Ralph L, Nelson. “Merger Movements in American Industry, 1895-1956.” Princeton University Press, 1959.