How Do Anti-Monopoly Laws Work?

Anti-monopoly laws, also called antitrust laws, have played an important role in the American market for well over a century. The aim of anti-monopoly laws is to give businesses an incentive to operate efficiently, keep prices down, and keep quality up by guaranteeing a competitive market. 

The federal government enforces the most impactful antitrust laws, but most states also have their own legislation in place to curb monopolistic business practices. While violating anti-monopoly laws can result in heavy fines or jail time, legal action is often restricted to the government stepping in to prevent companies from violating these laws. 

The History of Anti-Monopoly Laws

Antitrust legislation in the United States dates back to 1890 when Congress passed the Sherman Act to serve as a "comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade."

 Among other provisions, Section 1 of the Sherman Act prohibits unfair practices such as price fixing, business cartels, and other collusive practices that unreasonably restrain trade.

 The other two federal anti-monopoly laws are the Clayton Act and the Federal Trade Commission Act, both passed in 1914. The Clayton Act is a civil statute (meaning that it carries no criminal penalties) that prohibits mergers or acquisitions that are likely to lessen competition. This act also authorizes private parties to sue for triple damages when they have been harmed by conduct that violates either the Sherman or Clayton Acts. 

 The Federal Trade Commission Act created the Federal Trade Commission to police violations and prohibited unfair methods of competition in interstate commerce.

What Legally Constitutes a Monopoly?

According to the US Federal Trade Commission (FTC), courts “typically do not find monopoly power if the firm (or a group of firms acting in concert) has less than 50 percent of the sales of a particular product or service within a certain geographic area.” 

 Likewise, a company’s dominance must also be deemed to be sustainable before it can be subject to anti-monopoly laws. If competitive forces or the entry of new firms could disrupt an entity’s dominance, the courts generally will not consider it to be a monopoly. 

 The manner in which a company achieves dominance is also legally significant. According to the FTC, creating a monopoly by superior products, innovation, or business acumen is not forbidden under anti-monopoly laws. Antitrust legislation is instead aimed at companies that achieve dominance by exclusionary or predatory business practices.

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