Clayton Antitrust Act

Clayton Antitrust Act Definition

Clayton antitrust act is an antitrust law in the United States codified in 1914 which prevents in its infancy the trade practices that are unfair and harmful to the competitiveness of markets. Henry De Lamar Clayton was the person behind drafting this Act and the act came into being under the presidency of Woodrow.

Background

Due to the growing number of companies of all sizes, the United States law bodies sought to address the unfair and anti-competitive practices that could victimize the smaller companies at the hands of the larger organizations. In the late nineteenth century, the Sherman law was passed by US congress.

The Clayton Antitrust Act further removed any unclarified and missing provisions in order to safeguard the spirit of competitiveness. It listed some prohibitions, enforcement, and remedial measures in this regard and aimed at strengthening the provisions of the Sherman antitrust actSherman Antitrust ActSherman Antitrust Act is the legislation enacted by the US Congress to tackle monopolistic tendencies that reduce competition and interfere with trade and commerce. It prohibits deliberate or inorganic attempts to make competition unfair but not organic growth or monopolies formed through genuine means.read more.

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Sections of the Clayton Antitrust Act

The act has several provisions described in several sections of the text. For the purpose of this article, it should be sufficient to introduce three of the most important and widely used sections.

1. The act provides for prohibiting the companies from restricting the formation of labor unions. Thus, labor unions can protest against employers on considerations of wages, exploitation, etc. Hence the exemption to strikes, boycotts, bargaining, etc., by labor parties.
2. The act prohibits companies from merging with other companies in any way that lessens competition and/or creates a monopoly in the market. It has been inscribed in section 7 of the act. It is described in section 8 of the act.
3. The Clayton antitrust act also sets restrictions for the pricing of products. In some situations, the price floor is exploited by larger manufacturers, thereby eating away the margins and revenues of smaller firms. These practices are regulated by setting minimum price levels for certain products.

There are several other antitrust laws that are worth mentioning:

• Sherman Antitrust Act (1890) – Outlawed trusts, monopolies, and cartels;
• Federal Trade Commission Act (1914) – Unfair trade practices;
• Robinson Patman Act (1936) – Anti-price discrimination act;

Examples of the Clayton Antitrust Act

A simple example can be used to understand price discriminationPrice DiscriminationPrice Discrimination refers to the charging of different prices for the same type of products in different markets. It is a microeconomic pricing strategy, where the pricing mechanism depends upon the monopoly of the company, preferences of the customers, uniqueness of the product and the willingness of the people to pay differently.read more. Suppose a firm is fixed the selling price of an air cooler at $150. A lawyer files a lawsuit in the interest of a group of people who bought 5 air coolers. The reason for the litigation is the evidenced finding that the price of the air cooler should have been $125. The matter is taken to court as a civil suit, and the judges agree to the Public lawyer upon factual testimonies.

The court shall now order to pay for the damages suffered by the people who bought 5 air coolers. The number of damages would be three times the overcharge paid or ‘treble damage’ as laid down in the Clayton act. Hence, each consumer is liable to get ($150 – $125) times 3 the amount, or $75 in reparation.

US antitrust lawsuits have come a long way, and two of the well-known examples are as follows:

#1 – Kodak

Kodak has a long history of antitrust lawsuits. Kodak dominated the camera and film market for a very long time. It had to deal with lawsuits over competition and trade practices, several of which it won. However, some of the cases led to improvements in the federal antitrust law regime in the United States.

#2 – Heinz Inc

Another example in this regard is the intended merger of Heinz Inc with Gerber and Beech-Nut. Heinz Inc. is the leader in the food industry, and combined with the other two companies, the post-merger entity would have become a significant player in the baby food space. It would have led to monopolistic prices in the markets. The proposed merger was challenged by the US antitrust body, Federal Trade Commission in 2001. Following a lawsuit, Heinz dropped the merger, and thus competition was safeguarded in the industry.

Advantages

• The act brought all the participating firms on a similar level of competitiveness. It largely eliminated the practice of predatory pricingPredatory PricingPredatory pricing is a pricing strategy in which the prices of products and services are set at such a low level that it becomes nearly impossible for others to compete in the existing market and forces them to leave.read more and shielded every firm on this account.
• The act regulates the conduct of mergers and acquisitions in such a way that a person cannot serve on the boards of two competing companies. In precision, he/she cannot be in a position to make decisions on two boards.

Limitations

• Stricter antitrust laws in the US make it difficult for US companies to compete with companies from other geographies.
• In general, antitrust laws can be difficult to interpret as they contain provisions that have extensive applicability. For example, ‘unfair’ trade practices can be interpreted differently in different contexts and circumstances.

Important Points about the Clayton Antitrust Act

Conclusion

Prior to the Clayton Antitrust Act of 1914, the formation of cartels CartelsA cartel is a group of producers of goods or suppliers of services formed through an agreement amongst themselves to regulate the supply of goods or services with the basic intent to illegally regulate the prices or restrict competition regarding the said goods or services.read more was prevalent. The regard to anti-competitive practices was negligible, and it sparked the labor commissions and labor unions of that time to compel the US to make strong amendments to the existing Sherman act. The Clayton act made procedural and substantive amendments to US federal antitrust law. It took cognizance of malpractices in competing markets in their inception.

The Clayton Act has been the basis for some of the most popular historical lawsuits involving large corporations. It, being more detailed and foolproof than its predecessor Sherman act, has served a great deal to the cause of fair competition and trade practices.

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