It was recently revealed that the DC attorney general filed an antitrust lawsuit against Amazon. The suit alleges that Amazon illegally raises prices. With that in mind, we thought we should explore the underlying law.
What is the Antitrust Law
The Antitrust Law is interesting and very controversial. Many people have different ways of defining it. Still, it is generally accepted that law is formed to prevent competition in a particular market or the economy in general. The government intervenes in the economy by enforcing the antitrust law to provide stability for the economy.
The intervention is based on the assumption that the competition in the economy is good, and it helps to lower the prices. It also helps to generate higher standards in the economy. The competition between the companies in a certain market also helps increase the expertise and the companies’ ability, as they are required to be more creative and have more efficient products to remain competitive.
Unlawful Market Dominance
Market dominance is the term used to describe the over-concentration of a given market in a single company. This means that the total market consumption that a single company control is too large compared to other companies operating in that field.
The antitrust law describes one definition of market dominance as a situation where “the market share of any one firm in a given market exceeds the appropriate or reasonable percentage for that market.”
Antitrust laws come with a variety of different rules and regulations. These regulations are used to manage the behavior of companies to prevent unlawful dominance in terms of markets regarding goods and services.
The Purpose of Antitrust
Based on the definition given above, it is clear that the antitrust law aims to prevent companies from having a monopoly in a certain market. This is because competition assures an economy that produces and develops better standards of goods and services. Having competition also helps set prices at appropriate levels to make them affordable for all consumers.
The main goal of this law is to prevent market concentration by prohibiting companies from controlling large amounts of total revenue, or in other words, it prevents companies from being dominant in a certain market.
The Sherman Act
The Sherman Act is the act that most of the antitrust law is based on. The Sherman Act was set up in 1890, and it was one of the first official acts against companies that violated and created unlawful market dominance in a given market. The purpose of this act was to make sure that the companies compete with each other to lower prices while at the same time making sure that they provide high standards of products for consumers.
The Clayton Act
The Clayton Act was an extension of the Sherman Act, and it was set up in 1914. The purpose of this act is to make more strict regulations regarding monopolies. It also describes the guidelines that must be followed to determine whether a given company has unlawful market dominance in a certain market. The main purpose is to ensure that the companies compete and provide highly efficient products for consumers while at the same time making sure that they don’t consume too much of the market share to have monopoly control over the market sector.
The Per Se Rule
Under the antitrust law, a certain rule states that if a company has over 50% of the market share, it is automatically assumed to be operating with an unlawful monopoly. This means that even without any evidence provided as proof that the company is attempting to control the market, this rule assumes that it does.
History of the Antitrust law
Antitrust law was not developed immediately after the creation of capitalism. In fact, it was many years later that the first antitrust laws were established. It is assumed that the antitrust law has been created to prevent monopoly control over a market, but this was not the case in the beginning.
In fact, the first antitrust laws were designed to prevent companies from forming in combination and from trying to create monopoly control over a given market sector.
How the law is applied
The government applies antitrust laws to a single company that has attained control of a given market but not the whole market. For such a company to be considered operating unlawfully, it must have obtained over 50% of the total revenue in that sector.
If such a company has more than 50% of total revenue in one single sector, then they are assumed to have formed an unlawful monopoly and must be prohibited from continuing with this operation.
How the law is broken
It must be assumed that it is no longer possible to establish new laws as they require a correction of the previous laws. Therefore, it is necessary to ensure that the laws are followed as intended and prevent companies’ unlawful actions.
Examples of Antitrust Law in action
There are several examples of antitrust laws in action. One of the most popular examples is that of Microsoft. In fact, a well-known case against Microsoft was initiated on May 18th, 1998, by the United States Federal Trade Commission (FTC). A major complaint was that Microsoft held so much control over its market sector that it had monopoly dominance over the market.
Positive Arguments for Antitrust Laws
There are many positive arguments regarding antitrust laws. An example is that it reduces the cost of production for companies. This means that it provides companies with a fair chance to compete and meet their goals of producing quality products. In addition, antitrust laws tend to promote competition, so many consumers like competition and are often willing to pay lower prices for higher quality products.
Another positive argument is that it allows many different brands to be produced to accommodate consumer needs. It also incentivizes companies into making more efficient products to produce more benefits for consumers.
How the Antitrust Law is applied today
While the law is still applied today, numerous changes have been made to make it more effective. One of the major changes was made in 1933 when the Supreme Court of United States first recognized that cartels were not allowed under antitrust law.
This means that a cartel is a combination of two or more companies to control a market sector, which is illegal under the Sherman Act.
