Sherman Antitrust Act Definition
Sherman Antitrust Act refers to the legislation enacted by the US Congress to tackle monopolistic tendencies that reduced the competition and interfered with trade and commerce. The act is named after then U.S. Senator John Sherman of Ohio. The act prohibits deliberate or inorganic attempts to make competition unfair but does not restrict organic growth or monopolies formed through genuine means.
The main purpose of the act was to provide a level playing field to all players in the market so that no one is advantaged or benefited by hiding behind the law of that time. It aimed to dissolve the trust of those times that were specially formed for making the competition unfair and try to monopolize the market.
The act not only a barred former trust but also prohibited any attempt to curb competition, limit output, or fixed price.
Sections of the Sherman Antitrust Act
The Sherman antitrust act has three sections:
Section 1 – Trusts, etc., in restraint of trade illegal.
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.
This section prohibits activity that leads to altering prices, bid-rigging, etc. that affect the organic nature of trade and commerce.
Section 2 – Monopolizing Trade a Felony
Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.
Section 2 addresses the issue of monopolizing through unfair means and promoting anti-competitive activities.
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Section 3 – Extends the recommendation and guidelines of Section 1 across U.S. territories.
History of the Sherman Antitrust Act
During late 1800, the US became one of the largest manufacturers of goods globally. Many of the industrialists rode on the back of the industrial revolution creating giant companies and monopolies in their respective sectors like oil, steel, etc.
But soon, the public, as well as regulators, experienced the abuses of these monopolies in terms of pricing and supply of goods, poor working conditions, and less pay. People feared the domination of companies such as Standard Oil in the market and their acts of preventing competition from organizing.
Regulators wanted to promote competition to break the shenanigans of the corporations and encourage the free market.
Many states undertook an initiative to curb monopolies by imposing restrictions on a company owning shares in another company, but the smart corporations made their way through establishing trusts and controlling the overall market.
Moreover, the laws were applicable only within the state or intrastate, so it was less effective.
Therefore in response to all such violations, Senator John Sherman of Ohio introduced legislation to promote competition and stop unfair trade practices. This legislation came to know as the Sherman Antitrust Act of 1980.
The act gave the federal government the power to dissolve or declare at trust illegal if it were to be found doing unfair trading to create monopolies.
Several trust and companies were tried under this act for unlawful practices. The act was used to dissolve Northern Securities Company in 1904 and was used again in 1911 against Standard Oil Company and the American Tobacco Company. Further, in 1990 the government initiated action under the act against software giant Microsoft for preventing competition through forbidden practices.
The passing of this Antitrust act paved the road for more strict and effective laws like the Clayton antitrust act. It not only strengthened the former act but also covered activities outside the purview of the Sherman act.
Sherman Antitrust Act received humongous support among the public and small producers and competitors. Consumers were exploited through high prices & limited supply, and competitors were disgruntled over the behavior of large corporations to keep them out of the market.
So the act not only helped the consumers by promoting competition but also the corporations by clearing the blockade preventing them from entering and establishing themselves in the market.
This has been a guide to the Sherman Antitrust Act and its definition. Here we discuss the purpose, sections, history, and its effect on monopolistic practices. You may learn more about financing from the following articles –