The Basics of Sherman Antitrust Act
The Sherman Antitrust Act is authored by Senator John Sherman and was passed into law in 1890. As the name suggests, the law was made to prevent trusts that could cripple and industry. When the law was formulated, trusts were made when stockholders offered their share to one or a group of trustees. The stockholders are then compensated because of their share. This act could develop into monopoly which could cripple smaller businesses and limit competition. Although the law was passed before 1900s, it only came into full implementation during Roosevelt’s term.
The Sherman Antitrust Act is one of the many laws worldwide that aimed to go after companies planning and implementing decisions that could cause monopoly and anti-competition. Aside from trusts, the Sherman Antitrust Act has expanded to companies and corporations considering mergers or agreement in any way that will limit or curb competitiveness from smaller players in the same industry.
Innocent Monopoly
The law does not necessarily goes after companies that commands monopoly. There are “innocent monopolies” wherein a company achieved their status simply because of their reputation and successful business operations. The Sherman Antitrust Act cannot be applied here because their business decision is solely for their advancement and not to crush their competition.
Two Sections of Sherman Antitrust Act
Sherman Antitrust Act comes in two sections that practically cover every type of anti-competition practices.
Section 1: “Per Se Violation”
"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal."
One of the focuses of the law is to prevent companies from commanding trading and commerce that would thwart transactions in other places. For a company to be deemed a violator of Section 1 three elements should exist namely; an agreement among partners, limited competition and prevention of business transactions in other places.
Through Section 1, business is not only prevented from making decisions that would limit other business but even states and countries. This increases its scope as it anti-competition is not only built to implement fair commerce among businesses but also for states and countries that relies on commerce and business transactions for economic stability. Violations in Section 1 are considered as “per se” violations. This means the transaction between businesses is a clear indication of violation of the laws related to Section 1 of Sherman Antitrust Act.
Section 2: “Rule of Reason”
"Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony..."
The 2nd section of the Sherman Antitrust Act deals with activities of companies and organizations trying to establish a monopoly on a specific industry. As already indicated, this is different from innocent monopoly where progress dictates their capability. This section specifies that companies should not consider any actions that will limit competition or access to trading capabilities.
Proving that a specific company is violating the 2nd section of the anti-trust law is a bit challenging for the prosecutors and defendants will have a hard time proving their claims. The US court developed a simplified solution called the “quick-look.” Think of it as a common sense gauge: when a third party evaluator or casual observer of the activities sense that the actions would limit competition, then the company can be liable for breaking the antitrust law.
Expanding the Sherman Antitrust Act
The 2nd section of Sherman Antitrust Act is still a bit limited during its implementation. For this reason, the Clayton Antitrust Act was enacted which increases the activities could be labeled as violation to antitrust act. With this law, additional activities are specified such as entering to an agreement with another company to limit competition; exclusivity on resources and; mergers that would drastically limit competition.
The Clayton Antitrust Act also prohibits price fixing to create monopoly. This was amended by the Robinson Patman Act of 1936. The amendment changed the scope of price fixing that would curb competition. The amendment specified prohibition for companies to aggressively fix prices when other companies have the same financial capability of manufacturing the same product but with a relatively higher price.
Criticism of the Sherman Antitrust Act
Although Sherman Antitrust Act and other laws enacted in relation to the law protect business and various consumers, it has its share of critic\s. The main criticism of some experts is that the law limits the growth of some companies. Preventing mergers that would improve a business actually limits the potential of the industry to create better things and improve services for consumers. Some also criticize the law as it could also prevent prices of commodities from going down.
But even with the criticism, the Sherman Antitrust Act ensures that every business and individuals will have a fair chance of success. Although it was enacted more than 100 years ago, it continues to be relevant as it applies to every industry and business transactions.