What is Antitrust Law?

By Chelsea Levinson - Updated April 19, 2018
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Many people aren’t aware of antitrust laws, but they play a major role in protecting U.S. consumers and ensuring a healthy marketplace. Antitrust laws ban unfair business practices such as price fixing or monopolies.

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Antitrust laws ban unfair business practices such as price fixing or monopolies. This helps to ensure a healthy marketplace where competition thrives, giving consumers more choices. When companies compete fairly with one another, prices drop, products become higher quality and innovation grows.

What Is an Example of Antitrust Law?

Antitrust laws exist to preserve competition in the marketplace. Competition encourages low prices, high quality products and strong innovation. One example of an antitrust law is the Sherman Antitrust Act, passed in 1890. The Sherman Act was the first federal antitrust law passed in the U.S. It prohibits collusion and monopolization. Essentially, that means businesses can’t conspire together to fix prices or otherwise rig the market. Further, a business can’t create a monopoly through anti-competitive practices.

This doesn’t mean that monopolies can’t exist. If a business wins a monopoly through true competition, then it is not in violation of the Sherman Antitrust Act. Anti-competitive practices must be exhibited to violate the Act. It should also be noted that the Sherman Act is both a civil and criminal law. So, in certain instances, such as those of collusion between companies, the Department of Justice may step in and pursue criminal charges against violators.

What Are the Three Major Antitrust Laws?

Besides the Sherman Antitrust Act, there are two other federal antitrust laws: the Federal Trade Commission Act and the Clayton Act. Both of these laws are civil-only and carry no criminal penalties.

The Federal Trade Commission Act is quite simple, prohibiting "unfair methods of competition" and "unfair or deceptive acts or practices." This law also establishes the Federal Trade Commission, which is in charge of enforcing the act. The Clayton Act, on the other hand, expands the Sherman Act by banning mergers that could decrease competition, create a monopoly or drive up prices. Further, all mergers of a certain size must first notify the Federal Trade Commission and the federal Antitrust Division.

The Sherman Antitrust Act, the Federal Trade Commission Act and the Clayton Act work in tandem to cover a broad range of unfair and anti-competitive business practices. While they do have some crossover, they each have a unique purpose in preserving healthy market competition.

Do Antitrust Laws Vary from State to State?

The states do have their own individual antitrust laws, which are usually enforced by state attorney generals. These laws tend to be quite similar to federal antitrust laws. For example, New York’s antitrust law the Donnelly Act closely resembles federal antitrust law, with just a few differences.

State antitrust laws generally allow private parties to sue companies that engage in unfair or anti-competitive business practices. In Ohio, for instance, a private party is able to sue a company for up to four years after an antitrust violation. Check with your state law to learn more about antitrust protections where you live.

About the Author

Chelsea Levinson is a J.D., researcher, writer and award-winning video producer. She has created content for Vox, AOL, H&R Block, Comcast, Bank of America, State Farm, Delta Air Lines, MAKERS, PBS, Levo and more.

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