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What is the Sherman Act of 1890?
The Sherman Act was the first major federal law passed with the purpose of ensuring competition across and within industries. At the time of its passage, several large companies had nearly complete control over certain industries (steel, oil, and railway) very important to the development of the United States. The effect of this lack of competition was to create exorbitant wealth in a few individuals and higher prices for consumers. The high price to consumers reduced consumption and resulted in lower total economic output.
Note: See Justice Blacks opinion in Northern Pacific Railroad Co. v US, 36 US 1 (1958) for a description of the Sherman Act purpose.
Example: The most well-known anticompetitive trusts were John D. Rockefeller's Oil Trust (Standard Oil of New Jersey), and J. P. Morgan's Steel Trust (US Steel Corporation). Other examples include Sugar Trust, the Whisky Trust, the Cordage Trust, the Beef Trust, and the Tobacco Trust.
In response to this reality, Congress passed the Sherman Act, which seeks to preserve competition by prohibiting two types of anticompetitive business behavior:
- Section 1 - Contracts, combinations, or conspiracies in restraint of trade or commerce, and
- Section 2 - Monopolies and attempts to monopolize.
The Sherman Act fails to define what is a contract, combination, or conspiracy in restrain of trade or a monopoly. As such, much of antitrust law is based in the common law interpretation of federal courts.
Note: The specific types of conduct prohibited under The Sherman Act is discussed below.
Next Article: Contract, Combination, Conspiracy in Restraint of Trade Back to: ANTITRUST LAW
Discussion Question
Do you think the Federal Government is justified in regulating areas of business industry in this manner? Why or why not? Should business rights be balanced against those of consumers?
Practice Question
What type of conduct does the Sherman Act prohibit? What are the differences between the protections of Section 1 and Section 2?
Related Topics
- Antitrust Law (Intro)
- What is Antitrust Law?
- What are the Major Antitrust Laws?
- What government agency enforces antitrust law?
- What Sanctions are available under antitrust law?
- What is the Sherman Act of 1890 (Sherman Act)?
- What is a Contract, Combination, of Conspiracy in restraint of trade?
- What is Per Se Illegality and the Rule of Reason?
- What is a Monopoly?
- Herfindahl Hirschman Index (HHI) Definition
- What businesses are exempt from the Sherman Act?
- Horizontal Restraint Sherman Act?
- Sharing Information?
- Refusal to Deal?
- Territorial Agreement?
- Price Fixing?
- Resale restraint?
- Exclusive dealing?
- Tying products?
- Territorial agreements?
- What is Monopolization under the Sherman Act?
- What is the Clayton Act of 1914 (Clayton Act)?
- What is price discrimination under the Clayton Act?
- What are special arrangements prohibited under the Clayton Act?
- When are tying contracts an illegal restraint under the Clayton Act?
- When are reciprocal dealing contracts an illegal restraint under the Clayton Act?
- How does the Clayton Act regulate mergers and acquisition?
- FTC Act Antitrust Law
