Antitrust laws are federal and state laws protecting free trade and competition in the marketplace. These laws hold companies and individuals accountable for illegal actions such as:
- Fixing prices.
- Rigging bids or price quotes to governmental entities or other purchasers.
- Agreeing to divide up a market by customers or geographic areas and not compete with one another.
- Monopolizing a market through behavior designed to exclude competitors rather than through skill, innovation or hard work.
Antitrust law is one of the least understood areas of the law. To better understand it, we must go back the late 19th and early 20th centuries, a time when a colossal wave of industrialization was sweeping the United States. Large corporations developed within many industries, including the railroad and oil industries. These already-sizable corporations then began to acquire or merge their competitors, resulting in even larger companies with little or no competition. The massive combined corporations were commonly called “trusts.”
Standard Oil was the first-ever trust. For more than two decades, Standard Oil used exclusionary practices, predatory refining prices, and the passage of laws designed to exclude any competitors. The head of the trust, John D. Rockefeller, essentially offered his competitors two choices: join us, or be destroyed. His tactics and the economic devastation caused by the Standard Oil Trust are detailed in the Oil War of 1872, an exposé by American journalist Ida Tarbell (whose father was an oilman facing annihilation by the trust).
The first federal antitrust law, the Sherman Act, was enacted in 1890. (Ohio Sen. John Sherman, a native of Lancaster, Ohio, was the principal author of the legislation.) Shortly after the Sherman Act was passed, Ohio’s attorney general at the time, David K. Watson, sued Standard Oil (based in Cleveland at the time) in the Ohio Supreme Court. The court ordered the breakup of the trust, but Standard Oil refused to comply with the decision, instead opting to move its headquarters to New York.
But President Theodore Roosevelt capitalized on the fame of Tarbell’s articles on Standard Oil to fervently prosecute the trust. Ida Tarbell serves as an example of how important an everyday American citizen can be in assisting law enforcement agencies in uncovering illegal antitrust behavior. (If you have a tip on potential antitrust conduct, please complete our Reporting Antitrust Complaints form.)
President Roosevelt created the Bureau of Corporations (now the Federal Trade Commission), and the U.S. Justice Department filed a 170-page complaint against Standard Oil. Ultimately the U.S. Supreme Court found that Standard Oil was exactly the type of trust that the Sherman Act is designed to make illegal. Standard Oil, the largest trust and largest private firm in the world at the time, was busted – broken up into 34 companies. In other words, the Sherman Act worked as designed – as a tool to prevent trusts from using their monopoly power to injure the average American.
Put simply, antitrust is pro-competition. It ensures fair and competitive markets. And, most importantly, it protects consumers. Which is why the Antitrust Section of the Ohio Attorney General’s Office investigates and enforces the antitrust laws against industries that may present a monopoly, or those that collude with others to raise prices.
Bid-rigging: A form of price-fixing in which competing companies conspire to submit pre-determined bids to a governmental entity or other purchaser that uses a competitive-bidding process to award contracts. Bid-rigging usually results in higher prices being paid for goods or services because it eliminates or reduces competition. (Also see “Price-fixing” entry.)
- Example: Company A and Company B both compete to provide information technology services. An Ohio agency publicly requests bids from IT companies to become the agency’s IT service provider. Company A and Company B both secretly agree that Company A will win the bid in exchange for Company A not bidding on another governmental bid that Company B wants.
Exclusive dealing:A common example is an agreement between a supplier and a retailer through which the retailer agrees to exclusively carry the supplier’s product. Exclusive dealing is most likely to be illegal when the company imposing the exclusive agreement has market power and uses the exclusive dealing contracts as a way to harm competition or by hindering competitors’ ability to gain a foothold.
Group boycott: An agreement among two or more competitors to refuse to deal with another firm, or to encourage others not to deal with another firm, in order to discipline, influence or even destroy the targeted firm. The targeted firm may be a supplier, customer or competitor of the conspirators.
- Example: Company A and Company B are phone manufacturers that sell their products through a large retailer and a small retailer. One day, the small retailer decides to offer a discount on Company A’s and Company B’s phones. In response to the small retailer’s discount, the large retailer calls Companies A and B and threatens to no longer carry their phones if they permit the small retailer to discount the phones. Company A and Company B then agree to threaten to terminate the small retailer as a retailer unless the small retailer observes a specific price policy. Companies A and B have engaged in a group boycott.
Mergers and acquisitions: To determine whether a merger may harm competition, the basic question that antitrust enforcers must answer is whether the companies planning to merge have products or services that compete with one another, and, if so, where they compete geographically.
Monopoly or monopolization: Actions by a monopolist (a firm that is the only, or virtually the only, seller of a good or service in the market) taken for the purpose of becoming a monopolist or maintaining its monopoly position. Monopolization is more than just growth through skill, innovation or hard work; it requires the intent to obtain or and maintain monopolistic power to exclude competitors.
Supply-chain restraints: Any agreements involving parties along the supply chain that are in a so-called vertical relationship (e.g., supplier and wholesaler or supplier and retailer). Vertical restraints typically range from resale price maintenance or sales territory allocation to how a retailer must display or market a supplier’s product.
Price-fixing: An agreement among two or more sellers of a product or service to set (and usually raise) the prices of their products or services.
- Example: Company A and Company B both compete to sell hammers to consumers. Company A and Company B meet or communicate with each other and agree to sell their hammers at a certain price to consumers.
Tying: An arrangement in which the seller of a product or service requires, as a condition to the sale of that product (the tying product), that the buyer purchase an additional product (the tied product). The tying arrangement is unlawful when the seller has power over the market for the tying product.
- Example: Company A is a monopolist in the peanut butter industry. Company A decides to start producing its own jelly. In promoting its line of jelly, Company A requires consumers who purchase its peanut butter to also purchase its jelly. After Company A begins selling its peanut butter and jelly together, other companies in the jelly industry experience a large decline in demand due to purchases of Company A’s jelly. This is likely an illegal tying arrangement because Company A is using its strength in the peanut butter industry to promote sales of its jelly in a competitively unreasonable manner.
Market allocation: When competitors agree to divide a market between competitors and not compete in those areas. The markets can be divided in various ways, including,
- By geographic area: Company A agrees to take customers in the northern part of the state, Company B in the southern part.
- By customer type: Company A agrees to bid on food contracts only for colleges, Company B on food contracts only for primary and secondary public-school systems.
- By product: Company A agrees to bid only on toner, Company B only on copier paper.
Wage-fixing: An agreement between competing employers to set or cap employee wages. This prevents the companies from competing for talent and can artificially suppress pay below market rates.
No-poach agreement: An agreement between competing companies to not hire or solicit each other’s employees. This restricts worker mobility, suppresses wages, and reduces job options.