Sherman Antitrust Act - Business in United States of America
The Law: First federal law to limit cartels and monopolies from forming in restraint of trade
Date: Signed into law on July 2, 1890
Significance: The Sherman Antitrust Act was meant to protect consumers from monopolistic business practices that could drive up prices by eliminating competition. It was originally directed against the Standard Oil Company, owned by John D. Rockefeller, Sr., and provided for fines up to $10 million for corporations or $350,000 for individuals.
President Benjamin Harrison signed the Sherman Antitrust Act into law to prohibit coercive monopolies that try to control their markets by “force, fraud or theft.” The act was the first federal antitrust statute in the United States, and it enshrined in American law the principle that artificial restraint of trade or commerce constitutes an illegitimate act. It prohibits not only monopolies by a single company but also agreements or conspiracies between companies to reduce competition.
In general, monopolies result in higher consumer prices due to lack of competition, but this is not always the case. Critics of the Sherman Antitrust Act argue that large companies that control their market because they achieve economies of scale in an efficient and legal manner should not be treated as coercive monopolies. Such companies may not artificially raise consumer prices but may keep prices at the levels that the market will tolerate while supplying consumer demand. As long as a large company does not artificially raise prices or arbitrarily withhold products to create shortages and drive up prices, it does not violate the Sherman Antitrust Act. Price-fixing arrangements among competing companies are a violation, as they restrain or interfere with market forces setting prices.
Interpretation of the Sherman Antitrust Act has changed over the past century. Originally, the act also prohibited many types of organized labor activities, but such actions were legalized under the Clayton Antitrust Act of 1914. Later, utility companies were granted monopolies to operate in specific areas. Their rates, however, were regulated by commissions to prevent them from artificially inflating prices.
See also: antitrust legislation; Federal Trade Commission; labor history; Northern Securities Company; price fixing; Sports franchises; Supreme Court and commerce.
Antitrust legislation: The Great Depression
Antitrust legislation: Sherman Antitrust Act
Northern Securities Company