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What are Antitrust Laws?

By Sheri Cyprus
Updated May 16, 2024
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Antitrust laws, also known as competition laws, are legal rules to promote fair competition in the marketplace. These laws can apply to both businesses and individuals. Antitrust laws are designed to prevent actions that might hurt consumers or unfairly harm other businesses, such as the formation of monopolies, illegal cooperation between competing businesses, and certain mergers between companies. These types of laws are in effect in many countries, and are even shared between countries in some cases, such as in the European Union.

Competition and Monopolies

In most cases, competition between businesses results in lower prices for consumers. It may also encourage businesses to provide a higher quality of goods and services in order to attract customers. When a business is a monopoly, it is the only seller of a particular product or service in its market; without competition from other businesses, it is often able to charge consumers higher prices. Antitrust laws may help prevent companies from becoming too large, eliminating their competition, or being able to fix prices in the marketplace.

Collusion between Competitors

Antitrust laws are often designed to prevent competing companies from working together to set prices. When companies work together — or collude — they may be able to raise prices without fear of a competitor offering the same type of item or service at a lower price. These laws also make it illegal for other types of collusion, such as agreeing not to compete in certain areas or with certain products. By forcing competing businesses to make decisions independently, the laws can help ensure that consumers benefit from competition within the marketplace.

Company Mergers

One of the most difficult issues often addressed by antitrust laws is the merger of formerly competing companies. Many times, a merger will result in a business that is stronger, more efficient, or more stable. A merger may also reduce competition, however, leaving fewer suppliers of particular products or services in the market. This could result in higher prices and less incentive to provide consumers with higher quality goods and services. Antitrust laws often regulate mergers to help prevent monopolies and other situations where consumers or other businesses may be significantly harmed.

U.S. Antitrust Laws

In the United States, these types of laws essentially began with the Sherman Antitrust Act of 1890, which applied to interstate transactions. It removed limits on competitive trade and made it illegal to form a monopoly or attempt to monopolize a market. The Clayton Act, which was passed in 1914, regulates against mergers or acquisitions that would substantially decrease competition or might create a monopoly. In 1936, the Robinson–Patman Act made it illegal for producers to engage in price discrimination by allowing some businesses to purchase products at lower prices than other businesses. Various other laws also encourage fair competition in the marketplace.

The U.S. Federal Trade Commission (FTC), which was formed in 1914, is charged with enforcing the country's antitrust laws. Many of the laws are not specific and are subject to interpretation about what is best for a competitive marketplace. The FTC must enforce the standards and interpret the law in each particular case. For example, the FTC often reviews mergers to determine whether they reduce competition or create monopolies.

Competition Law in the European Union

In the European Union, these types of laws are often similar to those in the U.S. They restrict or prohibit things such as monopolies, certain mergers, and collusion between competitors. One difference is a restriction on countries unfairly helping their own companies to give them advantages over businesses in other nations in the European Union. The European Commission, which is the executive branch of the European Union, is responsible for enforcing its competition laws.

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Discussion Comments
By anon139494 — On Jan 04, 2011

My aunt has a computer but she can't get the internet through AT&T because Time-Warner has staked out her apartment building as "theirs". The only way she can get internet service is with Time-Warner, which she doesn't want. Isn't this antitrust?

By anon136685 — On Dec 23, 2010

what about the monopoly the NCAA holds over the heads of all athletes that play college athletics?

By Glasshouse — On Jul 12, 2010

@ Cary- In the European Union, antitrust laws are grouped under the EU Competition Law. The EU Competition Law has four main areas of focus: Collusion through the establishment of cartels; diminished competition through monopolies; formation of monopolies through mergers; and direct and indirect subsidies given to individual companies by member states.

The first three areas of focus are similar to American antitrust laws, but the last is unique to the European Union. Unlike the United States, unique member states with their own economies separate from the greater economy compose the European Union.

Say for example, Spain gave subsidies to one of its major oil companies like Repsol YPF, the company could offer its commodities for less, in turn driving down the price and increasing market share. This would be a definitive boost for the Spanish economy, as the company would surely grow, but it would be damaging to the other members in the Union.

By parmnparsley — On Jul 12, 2010

There are natural monopolies that are immune to anti-trust laws. Instead, they are subject to heavy regulation to ensure that they do not gouge consumers.

Utilities are example of natural monopolies. The rules for utilities are different because they require large amounts of capital, and there are naturally few competitors. Often times there are not enough consumers to warrant competitors.

The benefit for natural monopolies works both ways. Monopolies benefit because they are almost guaranteed to make a ROI, and they can count on revenue far into the future. Consumers benefit because industries with natural monopolies are able to develop their technologies into maturity. Since there are no technology "races", so to speak, they can focus on efficiency, resulting in lower prices for the consumer.

By cary — On Oct 13, 2009

I think it's important to remember that antitrust laws are different in different countries around the world. The laws listed in this article are specific to the United States, although there has been a growing movement toward US-type competition laws internationally.

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