Antitrust

United States antitrust law is the body of laws that prohibits anti-competitive behavior (monopoly) and unfair business practices. These competition laws make illegal certain practices deemed to hurt businesses or consumers or both, or generally to violate standards of ethical behavior. Government agencies known as competition regulators regulate antitrust laws and may also be responsible for regulating related laws dealing with consumer protection. The term "antitrust" was originally formulated to combat "business trusts," now more commonly known as cartels. Other countries use the term "competition law." Many countries including most of the Western world have antitrust laws of some form; for example the European Union has provisions under the Treaty of Rome to maintain fair competition, as does Australia under their Trade Practices Act 1974.

Single vs. Multi-Firm Conduct

A distinction between single-firm and multi-firm conduct is fundamental to the structure of U.S. antitrust law, which, as noted antitrust scholar Phillip Areeda has pointed out, "contains a 'basic distinction between concerted and independent action.'"Multi-firm conduct tends to be seen as more likely than single-firm conduct to have an unambiguously negative effect and "is judged more sternly." European competition law also includes a fundamental distinction between single-firm and multi-firm conduct, but a different analytical structure is applied. In U.S. antitrust law, the Sherman Act addresses single-firm conduct by providing a remedy against "[e]very person who shall monopolize, or attempt to monopolize . . . any part of the trade or commerce among the several States."  This prohibition does not condemn monopoly per se but only monopoly that has been acquired or maintained through prohibited conduct: Most businessmen don't like their competitors, or for that matter competition. They want to make as much money as possible and getting a monopoly is one way of making a lot of money. That is fine, however, so long as they do not use methods calculated to make consumers worse off in the long run.

With regard to multi-firm conduct, the Sherman Act addresses this by prohibiting "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce."  Conduct falls within the scope of this prohibition only if some form of agreement or concerted action can be proven.

In considering multi-firm conduct, another distinction is also fundamental: the distinction between conduct that is deemed anticompetitive per se and conduct that may be found to be anticompetitive after a reasoned analysis. There does not appear to be a precedent for per se condemnation of single-firm conduct. Monopoly power alone, without some act of wrongful exclusion or other legally cognizable anticompetitive conduct, is not prohibited. To the contrary, as the respected jurist Learned Hand noted, "[t]he successful competitor, having been urged to compete, must not be turned on when he wins.  U.S. antitrust law thus does not attack monopoly power obtained through "superior skill, foresight and industry.

While the prohibition against multi-firm anticompetitive goes against agreements "in restraint of trade," it is not enough to show that an agreement in some technical way restrains trade. Under U.S. law, at least, the scope of the prohibition is limited to those agreements where the restraint of trade is unreasonable:

Every agreement concerning trade, every regulation of trade, restrains. To bind, to restrain, is of their very essence. The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.  One such obviously anticompetitive conduct as overt price fixing, for example, is placed into this per se category of conduct so clearly detrimental to competition that detailed analysis is unnecessary. Otherwise, antitrust plaintiffs are required to demonstrate, by the facts peculiar to the business to which the restraint is applied, the nature of the challenged conduct and why it is harmful to competition.

Anti-Trust Scrutiny

The following types of activity are often subject to antitrust scrutiny.

1. Price fixing - An agreement between business competitors selling the same product or service regarding its pricing
2. Bid rigging - A form of price fixing and market allocation that involves an agreement in which one party of a group of bidders will be designated to win the bid
3. Geographic market allocation - An agreement between competitors not to compete within each other's geographic territories.
4. Walker Process fraud - Illegal monopolization through the maintenance and enforcement of a patent obtained via fraud on the Patent Office (the term comes from the Supreme Court case Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965). 

Consumer Protection

Consumer protection laws seek to regulate certain aspects of the commercial relationship between consumers and business, such as by requiring minimum standards of product quality, requiring the disclosure of certain details about a product or service (e.g., with regard to cost, or implied warranty), or prescribing financial compensation for product liability. Consumer protection laws are distinct from antitrust. Some consumer protection laws are enforced by the U.S. Federal Trade Commission, which also has antitrust responsibilities. However, many competition agencies -- including the Justice Department antitrust division and the European Commission Directorate General for competition -- lack authority over consumer protection.

Rationale

Antitrust laws prohibit agreements in restraint of trade, monopolization and attempted monopolization, anticompetitive mergers and tie-in schemes, and, in some circumstances, price discrimination in the sale of commodities.  Efficiency-oriented economists reject the goal of competition and instead argue that antitrust legislation should be changed to primarily benefit consumers. No Congress or administration has supported this position. These economists largely ignore the political issues that motivated the laws in the first place.

Anticompetitive agreements among competitors, such as price fixing and customer and market allocation agreements, are typical types of restraints of trade proscribed by the antitrust laws. These type of conspiracies are considered pernicious to competition and are generally proscribed outright by the antitrust laws. Resale price maintenance by manufacturers is another form of agreement in restraint of trade. Other agreements that may have an impact on competition are generally evaluated using a balancing test, under which legality depends on the overall effect of the agreement.

Monopolization

Monopolization and attempted monopolization are offenses that may be committed by an individual firm, even without an agreement with any other enterprise. Unreasonable exclusionary practices that serve to entrench or create monopoly power can therefore be unlawful. Allegations of predatory pricing by large companies can be the basis for a monopolization claim, but it is difficult to establish the required elements of proof. Large companies with huge cash reserves and large lines of credit can stifle competition by engaging in predatory pricing; that is, by selling their products and services at a loss for a time, in order to force their smaller competitors out of business. With no competition, they are then free to consolidate control of the industry and charge whatever prices they wish. At this point, there is also little motivation for investing in further technological research, since there are no competitors left to gain an advantage over.

High barriers to entry such as large upfront investment, notably named sunk costs, requirements in infrastructure and exclusive agreements with distributors, customers, and wholesalers ensure that it will be difficult for any new competitors to enter the market, and that if any do, the trust will have ample advance warning and time in which to either buy the competitor out, or engage in its own research and return to predatory pricing long enough to force the competitor out of business.

From an economics perspective, the relatively recent industrial organization research has focused on construction of microeconomic models that predict and/or explain the prevalence of imperfectly competitive markets and deviations from competitive behavior, partly as a response to the criticisms of antitrust laws and policies by the Chicago School and by members of the law and economics school of thought.

Enforcement

In the United States, there are both state and federal antitrust laws. Enforcement of these laws takes three forms:

First, the federal government, via both the Antitrust Division of the United States Department of Justice and the Federal Trade Commission, can bring civil lawsuits enforcing the laws. The United States Department of Justice alone may bring criminal antitrust suits under federal antitrust laws. Perhaps the most famous antitrust enforcement actions brought by the federal government were the break-up of AT&T's local telephone service monopoly in the early 1980s and its actions against Microsoft in the late 1990s.

Second, state attorneys general may file suits to enforce both state and federal antitrust laws.

Third, private civil suits may be brought, in both state and federal court, against violators of state and federal antitrust law. Federal antitrust laws, as well as most state laws, provide for treble damages against antitrust violators in order to encourage private lawsuit enforcement of antitrust law. Thus, if a company is sued for monopolizing a market and the jury concludes the conduct resulted in consumers' being overcharged $200,000, that amount will automatically be tripled, so the injured consumers will receive $600,000. The United States Supreme Court summarized why Congress authorized private antitrust lawsuits in the case Hawaii v. Standard Oil Co. of Cal., 405 U.S. 251, 262 (1972).

Every violation of the antitrust laws is a blow to the free-enterprise system envisaged by Congress. This system depends on strong competition for its health and vigor, and strong competition depends, in turn, on compliance with antitrust legislation. In enacting these laws, Congress had many means at its disposal to penalize violators. It could have, for example, required violators to compensate federal, state, and local governments for the estimated damage to their respective economies caused by the violations. But, this remedy was not selected. Instead, Congress chose to permit all persons to sue to recover three times their actual damages every time they were injured in their business or property by an antitrust violation. By offering potential litigants the prospect of a recovery in three times the amount of their damages, Congress encouraged these persons to serve as "private attorneys general."