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What is an Antitrust Law?

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  • Written By: Karyn Maier
  • Edited By: Bronwyn Harris
  • Last Modified Date: 30 November 2016
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Antitrust law refers to the regulation of unfair business practices that inhibit free trade and healthy competition between companies that occupy the same industry market sector. This is a broad definition that basically translates to preventing the development of monopolies. However, there are additional objectives to enforcing antitrust laws. For one thing, consumers are protected from being burdened with unreasonable profit-making measures, such as price gouging. Regulations also prohibit predatory pricing, which is the practice of reducing the price of goods or services so much that existing market rivals may be forced to fold and new competitors are obstructed from entering the market at all.

Another area of regulation involves the identification and dissolution of cartels created so that market price, production, and distribution can be controlled by its members, who represent various business entities that produce the same type of product. Typically, cartels consist of a relatively small number of sellers since this makes it easier to monitor the market share of each of its members. However, sooner or later, one member of the cartel usually breaks protocol in terms of price fixing in order to leverage the market and gain a quick profit. This event not only tends to destroy the cartel from operating effectively, but it also makes the organization more detectable.

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The concept of antitrust law or competition law dates back to the early Romans who enacted Lex Julia de Annona, which stipulated that any attempt to hinder ships from delivering grain would invite severe penalties. Similar laws were imposed throughout history in different parts of the world. Today, U.S. antitrust law is based on the Sherman Act of 1890 and the Clayton Act of 1914. In most of Europe, the European Union (EU) serves as the antitrust commission. In fact, European competition law is outlined in and governed by the legislation adopted by all EU members called the Treaty of the European Community, also known as the Treaty of Rome.

A recent example of antitrust law in U.S. history is the Microsoft antitrust suit filed in 1998, which contended that the company violated competition laws by bundling its operating system with its own brand of browser. In effect, this automatically positioned the company as a monopoly in the browser market simply due to the fact that every consumer purchasing a personal computer purchased also possessed the browser software. In April of 2000, a federal judge determined that the company leveraged the browser market by these actions, thereby inhibiting competition from other vendors. It is interesting to note that an antitrust movie, aptly titled Antitrust, made its debut only a year later, which depicted a giant software company headed by a CEO played by actor Tim Robbins. Critics and fans alike of the film consider the software firm and the movie’s leading character to closely resemble Microsoft and its founder, Bill Gates.

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anon92416
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