What are Antitrust Laws?

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.

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.

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.

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.

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.

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.