Antitrust law is a collection of federal and state government laws in the United States that regulates the conduct and organization of business corporations. These laws are designed to promote competition for the benefit of consumers. The main statutes and the major functions they serve are as follows
- Sherman Act of 1890 – Section 1 prohibits price-fixing and the operation of cartels, and prohibits other collusive practices that unreasonably restrain trade.
- Clayton Act of 1914 – Section 7 restricts the mergers and acquisitions of organizations that would likely substantially lessen competition.
- Federal Trade Commission Act of 1914 – Section 2 prohibits the abuse of monopoly power
The regulation was originally designed to limit the scope and power and check the abuses threatened or imposed by the “trust” companies committing market abuses through monopolistic actions that emerged in the late 19th Century.
For more on the HSR act and how this effects trading merger arbitrage see our article Hart Scott Rodino HSR Filing – What All Traders Should Know! Merger Arbitrage Limited produces a dedicated page with live updates of all HSR early termination notices. When these are issued, the firms are able to proceed and consummate the deal. Traders are advised to be aware of these updates as the target stock price can be affected dramatically.
Antitrust Laws in Practice
Antitrust laws prohibit a number of business practices that restrain trade. Examples of illegal practices are
- price-fixing conspiracies
- corporate mergers that are likely to cut back the competitive fervor of certain markets
- predatory acts designed to gain or hold on to monopoly power
Some individuals, like Christine Lagarde, are known for having had focused legal practices on the subject.
This broad group of state and federal laws are designed to make sure businesses are competing fairly. Supporters say antitrust laws are necessary for an open marketplace. Competition among sellers gives consumers lower prices, higher-quality products and services, more choice, and greater innovation. Opponents argue allowing businesses to compete as they see fit would ultimately give consumers the best prices.
The courts may award penalties which are measured according to the size of the company or the business. In their inherent jurisdiction to prevent violations in future, the courts have additionally exercised the power to break up businesses into competing parts under different owners, although this remedy has rarely been exercised.
