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What is the Sherman Antitrust Act?

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  • Written By: Daniel Liden
  • Edited By: Bronwyn Harris
  • Last Modified Date: 27 November 2016
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The Sherman Antitrust Act, which was passed in 1890, was the first law passed by the United States Congress to restrict monopolies. A monopoly occurs when a single company or group of cooperative companies have control over over a certain business or aspect of the economy. An arrangement by which the stockholders of several different companies entrust their controlling shares of stocks to a board of trustees is known as a trust, and often results in a monopoly being formed, as the trust has excessive control over an industry. The Sherman Antitrust Act was intended to foster competition by preventing trusts from forming and artificially reducing supply and increasing prices of various products and services.

The most famous of all of the American trusts was Rockefeller's Standard Oil Trust, which was formed in the late 1800s. The trust controlled nearly all of the American oil industry, giving it almost total control of the prices and availability of oil. Trusts such as the Standard Oil Trust used several different tactics to eliminate competition and gain control of an industry. They bought out other companies and lowered their prices to levels that other companies were unable to compete with. They also tried to trap customers in complicated, long-term contracts; if this failed, they sometimes turned to intimidation and violence to get their way.

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Monopolies were perceived as a threat to the proper functioning of the American economy, so the Sherman Antitrust Act was put into effect. This stated that any agreements that unfairly restricted competition and affected interstate commerce were considered illegal. It also stated that forming or trying to form a monopoly over a given good or service was considered illegal. Subsequent acts, such as the Clayton Antitrust Act, add further restrictions on mergers, pricing, and related business-related issues.

While the Sherman Antitrust Act is meant to discourage and prevent unfair monopolies, it does not exist to prevent monopolies altogether. The Supreme Court has, in cases relating to the act, distinguished between innocent monopolies and monopolies formed through unfair agreements. Companies that achieve a monopoly through their own independent merit are not punished, as they deserve their control of the market. The antitrust act is still cited in court cases, but has changed with the times. The definition of what makes a market has been the primary matter of debate related to the antitrust act, as trade becomes possible through an ever increasing number of sources and complicates the way people view basic aspects of the economy.

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titans62
Post 4

I am doing a project on trust-breaking as well as monopolies during this time and I am wondering if there is a list anywhere on the internet or any other monopolies besides Standard Oil that were broken up due to the Sherman Anti-Trust Act.

I have also heard rumors that although Theodore Roosevelt was big on trust breaking Taft was actually the one that passed through more legislation to help break up trusts and monopolies and get rid of the dominance in corners of the industry like Standard Oil.

I am wondering if there is any truth to this or if it was simply a continuation of Roosevelt's policies and it simply took awhile for Congress to draft them and get them pushed through and it was not until Roosevelt's presidency was over?

jcraig
Post 3

@TreeMan - To be honest, yes Rockefeller did get done in to an extent by trying to crush competition, but this was a very small portion of what happened.

I have heard that Rockefeller used a variety of tactics, as noted in the article, but the price fixing was something that caused it to be impossible for anyone besides him to be successful in the oil industry.

Due to the American idea that monopolies are bad and the fact that Standard Oil was not the only monopoly as there were hundreds of men like Rockefeller during this era, it was necessary to pass legislation, such as this, to make sure that the market remained fair and that people were allowed choices in their purchases.

TreeMan
Post 2

@stl156 - Well to be honest all monopolies have to be approved by the government and they are very rare. One example of a monopoly that is allowed by the government is Major League Baseball as they are seen as being such a unique enterprise, that has attained supreme success, that in reality there is no way they will be overtaken by a rival league anytime soon in the United States.

Football, however, does not have a monopoly as there are still several different independent leagues out there besides the National Football League, although they are nowhere near as successful.

Determining what constitutes a legal monopoly is definitely something that I imagine is very complicated and is something that requires a lot of thought and discussion, but as far as Rockefeller goes I would guess that the fact he tried to crush his competition did him in in some regard.

stl156
Post 1

I do not fully understand exactly what the exceptions are in the Sherman Anti-Trust Act as far as what kinds of monopolies are allowed to be out there on the market.

I have always been under the impression that the Sherman Anti-Trust Act completely outlaws all types of monopolies and that the only exceptions are ones that are granted and allowed by the government for certain reasons.

The articles says that if the companies became monopolies on their own, then they are exempt, but how could this be proven and is it always followed?

I was under the impression that Rockefeller followed this route and did not try and crush his competition until the very end when he was powerful enough to do so.

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