What was the purpose of the sherman antitrust act?
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The Sherman Antitrust Act, written by Senator John Sherman of Ohio, was a federal statute passed by Congress in 1890. This act was passed by Congress as a way of regulating interstate commerce and is one of the most important statutes in American competition law. Competition laws were created in the United States to help maintain fair competition amongst corporations and to stop them from
conducting behavior that discourages competition.The Sherman Antitrust Act was passed in response to the widespread concern of the public to stop big corporations from dominating commerce in the United States. The act was passed to aid the greater good and success of the American people as a whole, versus the unyielding success of a few. The main goal of the Sherman Antitrust Act was to promote fair industrial competition. This gave smaller businesses a chance to thrive. It
was created to prohibit “every contract, combination…or conspiracy, in restraint of trade” or interstate commerce, and every attempt to monopolize any part of trade or commerce to be illegal (Oyez). According to Sherman, the original intent of the act wasn’t to put the companies who had great marketable gains from “superior skill and intelligence” in danger, but to stop monopolies and cartels, who didn’t give others in the market a chance to thrive from threatening economic competition.
The Sherman Antitrust Act is divided into three parts with specific provisions for regulating economic competition. In Section 1 of the Act, the authors set forth a basis for anticompetitive conduct when dealing with commerce. Section 1 of the act states, “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.” This means that any attempt to
monopolize a business across state lines or national borders will be deemed illegal and a violation of the act. In Section 2, the authors discuss the effects of anticompetitive behavior. It states, “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…” This section gives the consequences of
violating the Sherman Antitrust Act. It seems to be used to deter corporations from engaging in anticompetitive practices. Section 3, extends the provisions to corporations in the U.S territories. Over the years, many changes have been made to the Antitrust Act and additional legislations have been added. In 1914, the Clayton Antitrust Act was passed to put additional and more specific regulations on anticompetitive activities. Under the Clayton Antitrust Act,
activities such as price discrimination between different purchasers are illegal if it leads to the creation of a monopoly. The Clayton Act supplemented the Sherman Antitrust Act because it made more specific provisions outside of what was originally discussed in the Sherman Act. The Sherman Antitrust Act is important because it gave Congress more authority over economic commerce. Insider's experts choose the best products and services to help make smart decisions with your money (here’s how). In some cases, we receive a commission from our our partners, however, our opinions are our own. Terms apply to offers listed on this page.
LoadingSomething is loading. The US economy is based on a free enterprise system where the markets, not the government, determine prices. For this system to function properly, there must be competition. "The fundamental purpose of our antitrust laws is to preserve competition and prevent markets from being monopolized," says George A. Hay, Charles Frank Reavis Sr. Professor of Law and professor of economics at the Cornell Law School. "If we had widespread monopoly our economy would be much worse off." The first of those antitrust laws is the Sherman Antitrust Act, enacted in 1890. The Sherman Antitrust Act was intended to "preserve free and unfettered competition as the rule of trade" for the benefit of consumers. It made monopolization and other contracts that unreasonably restrain trade illegal. It is one of three core federal antitrust laws, along with the Clayton Antitrust Act and the Federal Trade Commission Act. The Sherman Act was named for Sen. John Sherman of Ohio, who was considered an expert on regulating commerce. It was signed into law by President Benjamin Harrison on July 2, 1890. Some states had already passed similar laws, but their scope was limited to intrastate business, whereas the Sherman Antitrust Act was applied across the nation. There are three main parts of the Sherman Act:
"The most important application of section one is to make price-fixing agreements between or among competing sellers unlawful," Hay says. "While price fixing does not create monopoly — literally a single seller — it results in prices that a monopolist would charge, prices much higher than would prevail under competition." The second section makes it unlawful to monopolize a part of commerce. "Basically it covers situations where large firms try to drive smaller competitors out of the market by various anticompetitive tactics, such as pricing below cost," Hay says. There are other practices some people may think are innocent that actually violate the Sherman Act, says Mark Grady, a UCLA law professor. These include "protests against low wages by people who are ineligible for union membership." The Federal Trade Commission (FTC) enforces the Sherman Act and other antitrust laws. It monitors businesses and challenges them when they're suspected of antitrust activities. The FTC reviews all major mergers and agreements, analyzing their potential effects on consumers and competition. While great in theory, the Sherman Act proved too vague in practice. For instance, it didn't clearly define key terms such as "monopoly" and "trust," and left up for interpretation what constitutes "unreasonable" restraint of trade. This left loopholes through which corporations could argue their defense. As a result, Congress passed the Clayton Antitrust Act in 1914 to amend the Sherman Act. The Sherman Antitrust Act vs. Clayton Antitrust ActThe Clayton Act strengthens the Sherman Act by clarifying key points in and prohibiting other harmful practices that the Sherman Act does not address, such as mergers and interlocking directorates when one person makes business decisions for competing companies. Hay says the most significant provision that supplements the Sherman Act deals with mergers, primarily between competitors. "The Act says a merger is unlawful if the effect may be substantially to lessen competition," he says. "It is mostly forward-looking in that it allows the government to block a merger that has not happened yet if the predicted effect is that competition may be harmed." The Clayton Act also created new ways of suing under the Sherman Act, UCLA's Grady notes. It allowed private parties to sue for triple damages if they have been harmed by conduct in violation of either the Clayton Act or the Sherman Act. Later, amendments further strengthened the Clayton Act, such as the Robinson-Patman Act amendment of 1936, making it illegal for merchants to use certain discriminatory pricing in their dealings with each other. In 1950, the Celler-Kefauver Act extended the breadth of antitrust laws to include all forms of mergers that substantially reduced competition through monopolization. It also prevented one firm from gaining stock or physical assets in another firm if doing so would inhibit competition. Then in 1976, the Hart-Scott-Rodino Antitrust Improvements amendment required companies to notify the government before engaging in a large mergers or acquisitions. Understanding antitrust lawsThese US antitrust laws are designed to preserve competition in the marketplace. Consumers benefit from competition as it keeps prices low and leads to more and higher-quality options. Without the antitrust laws, businesses could form monopolies allowing them to have outsized control over market prices and the availability of goods. "Our system of enforcing the antitrust laws is complex," Hay says. "There are two federal agencies charged with maintaining competition: the Antitrust Division of the US Department of Justice and the Federal Trade Commission. But in addition, each of the 50 states has laws resembling the federal laws. And on top of that, individuals or companies injured as the result of other entities violating the laws can bring a private action to recover damages." The bottom lineThe Sherman Act was the first antitrust law passed by Congress in an attempt to preserve competition in the open market. It was later deemed too vague and amended by the Clayton Act, which gives individuals the right to sue for triple damages if they have been harmed by actions that violate either the Sherman Act or Clayton Act. "The most significant takeaway for the average consumer is that the antitrust laws serve to maintain prices at competitive levels," says Hay. "Not only are consumers better off, but since consumers buy more when prices are lower, workers and suppliers of inputs also benefit."
Coryanne Hicks is a personal finance writer and ghostwriter. In addition to articles, Hicks has ghostwritten whitepapers and financial guidebooks for dozens of industry professionals. Her U.S. News & World Report video series on how to start investing at any age won an honorable mention at the 2019 Folio: Eddie & Ozzie awards for best Consumer How-To video. She was also a 2019 SABEW Goldschmidt fellow for business journalists.Previously, Hicks was a fully licensed financial professional at Fidelity Investments where she helped clients make more informed financial decisions every day. She is passionate about improving financial literacy and believes a little education can go a long way. Readers can connect with her on her website at www.coryannehicks.com. Read more Read less What was the purpose of the Sherman Antitrust Act 1890 )?The Sherman Anti-Trust Act authorized the federal government to institute proceedings against trusts in order to dissolve them. Any combination "in the form of trust or otherwise that was in restraint of trade or commerce among the several states, or with foreign nations" was declared illegal.
What is the purpose of the Sherman Antitrust Act quizlet?- The major purpose of the Sherman Antitrust Act was to prohibit monopolies and sustain competition so as to protect companies from each other and to protect consumers from unfair business practices.
Who did the Sherman Antitrust Act benefit?The Sherman Anti-Trust Act was created to help workers and smaller businessmen by encouraging competition. While it did assist these two groups, the act eventually hindered workers in attaining better working conditions.
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