Antitrust: Reads Like a Fairytale!

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Once upon a time in the good old U.S. of A, way back in the 19th century, there were gigantic companies that were known as trusts. We had trusts for Steel, we had trusts for oil, we had trusts for railroads, and we had trusts for just about everything except trust itself.

Trouble with trusts is that the ugly ogre that lives under the bridge is married to the step-mother of the three ugly sisters and it ain’t Cinderella going to the ball. Trusts create monopolies, monopolies bring about supply control and supply control leads to price fixing. If there is nobody else around (and no knights in shining armor), then, the princess is hardly likely to be saved from the clutches of the beastly wart-ridden witch.

Antitrust was the poison apple that nobody would want to eat and that governments had to get rid of. The US Congress ended up passing laws to protect consumers from the bad practices of antitrust methods in the hope of boosting competition.

1. The Sherman Act 1890

Competitors are legally restricted from making agreements to limit competition and free-market economics. It is this act that makes it illegal to be a monopoly.

2. The Clayton Act 1914

Although it was illegal under the previous act to control prices, there was a way round this legislation, but merging and creating means to control prices of products on the market. This act forbids mergers and acquisitions taking place if the company that will be created is going to limit competition substantially.

3. The Federal Trade Commission Act 1914

The Federal Trade Commission was set up to carry out surveillance of the market and make sure that unfair practices were not being implemented.

But that doesn’t mean it’s all a happy ending and they get married, have two kids and live happily ever after. There are still cases of antitrust violation. There are breaches. There is collusion and there are agreements between companies to fix prices every day around the world.

  • UK booksellers agreed in 1900 (until 1991) to sell books at the recommended retail price under the Net Book Agreement. This all went wrong in 1991 when two large chain stores (Dillons and Waterstones) discounted their books. Prices collapsed and there was an end to fixed pricing techniques.
  • In violation of the Sherman Act, the Fashion Originators’ Guild of America refused the sale of their clothes in stores that had replicas of their garments.
  • American Tobacco Co. was prosecuted in 1946 when it was divided up into four ‘separate’ entities. However, those entities still had control of the entire market in the US. This was forbidden under the Sherman Act.

Certain fields are not concerned by the antitrust violation laws of the world and these include the sports sector, media, utilities, health care, insurance and banking or financial markets. Ah! Let’s make laws, and then exempt those that may be the worst perpetrators of them just so they don’t get prosecuted?

In the EU, if companies cooperate with antitrust commissions then they see their possible fines either reduced substantially or wiped out. That’s not a bad ending to the fairytale is it? They all lived happily ever after…after all?

Originally posted http://www.tothetick.com/antitrust