Antitrust regulation had a dampening effect on the growth of big business by dismantling monopolistic companies, reducing predatory behaviors such as price fixing, and restricting mergers.
The federal government’s
The Sherman Antitrust Act was relatively simple. It prohibited any contract, combination, or conspiracy in restraint of trade, as well as monopolization or attempts to monopolize. The law authorized the United States attorney general to prosecute violations or to bring civil suits against violators, seeking relief. In addition, private persons claiming injury could sue alleged violators and recover triple the amount of proven damages.
The provisions were vague and were gradually given detail by court cases. Loose combinations of several firms were frequently convicted for agreeing to fix prices, allocate markets, or agree on other elements of competitive behavior. Early cases involved railroads (Trans-Missouri Freight Association, 1897) as well as industrial firms (Addyston Pipe and Steel Company, 1899). The form of anticompetitive agreement was sufficient to constitute illegal behavior, regardless of whether the results significantly harmed others. This contract component remained consistent throughout antitrust history.
The provision against monopolization was not very effective. One of the greatest waves of corporate mergers occurred after 1890, culminating in the formation of the United States Steel Corporation in 1901. The presidency of Theodore Roosevelt saw a few actions against giant monopolies. In 1904, the first trust-busting episode involved the dissolution of Northern Securities Company, a giant railroad holding company. In 1911, successful prosecutions were brought against Standard Oil and American Tobacco. Both had been formed by extensive mergers. Each was broken up into several separate companies.
During the presidency of Woodrow Wilson, antitrust legislation was significantly extended by two related measures. The
Policy changed dramatically with the onset of the Great Depression in 1929. The
The NRA was declared unconstitutional in 1935; however, elements of it were reenacted to protect such sectors as coal mining, airlines, petroleum extraction, and truck transport against “destructive” competition. Antipathy toward competition also helped motivate the
The relatively ineffective restrictions on corporate mergers in the Clayton Act were greatly strengthened by the
Two noteworthy big-business prosecutions ended in 1982. The government’s case against International Business Machines (IBM) was withdrawn after being in the works from 1969. American Telephone and Telegraph Company (AT&T) accepted a consent decree to separate into a number of component companies. Both industries were subject to rapid technological change. IBM soon lost its dominant position in computers to firms such as Microsoft and Hewlett-Packard. The AT&T settlement, along with deregulation of rates, significantly opened the way for the rise of new telecommunications firms such as Sprint and the ill-fated WorldCom.
Other countries began to imitate U.S. antitrust measures, beginning with the forced breakup of cartels in Japan and Germany after World War II. Globalization greatly reduced the capacity for industrial firms to maintain monopoly positions, and the World Trade Organization and the European Union restrained the capacity of governments to aid their favored local monopolies.
American antitrust policy has always generated controversy among economists. Its biggest benefits have come from reducing collusion and preventing large firms from unfairly using their power to prevent the rise of competitors.
Armentano, Dominick T. Antitrust Policy: The Case for Repeal. 2d ed. Auburn, Ala.: Mises Institute, 1998. Argues that antitrust policies often restrict competition and interfere with business efficiency. Hovenkamp, Herbert. Federal Antitrust Policy: The Law of Competition and Its Practice. 3d ed. St. Paul, Minn.: Thomas/West, 2005. An examination of antitrust law and the cases involved. Kovacic, William E., and Carl Shapiro. “Antitrust Policy: A Century of Economic and Legal Thinking.” Journal of Economic Perspectives 14, no. 1 (Winter, 2000): 43-60. Analyzes the importance of judicial rulings and economic analysis in the evolution of antitrust. Kovaleff, Theodore P., ed. The Antitrust Impulse. Armonk, N.Y.: M. E. Sharpe, 1994. Numerous essays express divergent views: Part 3 showcases both critics and defenders of antitrust law. Peritz, Rudolph J., Jr. Competition Policy in America, 1888-1992: History, Rhetoric, Law. New York: Oxford University Press, 1996. History of federal government policies relating to antitrust issues. Includes a substantial bibliography and an index. Reed, O. Lee. The Legal and Regulatory Environment of Business. 14th ed. New York:McGraw-Hill/Irwin, 2008. Lengthy work covers antitrust legislation in detail, examining the statutes and cases. Contains much other material on business ethics. Wilcox, Clair, and William G. Shepherd. Public Policies Toward Business. Homewood, Ill.: Richard D. Irwin, 1975. Chapters 5 through 10 deal comprehensively with antitrust policies and their effects.
Clayton Antitrust Act
Federal Trade Commission
International Business Machines
U.S. Department of Justice
Northern Securities Company
Sherman Antitrust Act
Standard Oil Company
United States Steel Corporation