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Sherman Act And The Antitrust Movement Politics Essay

Paper Type: Free Essay Subject: Politics
Wordcount: 3248 words Published: 1st Jan 2015

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There are three main sections/provisions under the Sherman Antitrust Act. The first section prohibits specific anticompetitive conduct like the establishment of a monopoly. The second section prohibits deals that have the ending results that are anticompetitive in nature. These can be combinations in forms of trusts that lead to restraint of trade or commerce. The third section extends the provisions of the first section into US territories and Washington DC and it also states that people who are hurt by a business that breaks this act are eligible to sue for damages (threefold). The purpose of the act was to oppose the combination of entities that could potentially harm competition, such as monopolies. The Act is not clear because a trust is an older form of contract whereby one party entrusted another with its property. This did not encompass the owning of stock in another company. The courts also would put their own words into the act that the Congress did not actually write into the Act. There was too much room for interpretation of the act which made it inconsistent and not very efficient.

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The Sherman Antitrust Act was able to pass with only one dissenting vote even though the Congress was mostly comprised of Republicans. I believe it passed because the Congress realized what the “snowball-effect” of a monopolistic economy would have on everyone, especially consumers. Congress knew that if trusts continued a huge gap between the poor and the rich would develop. The monopolies could charge any price they wanted to and people would have to pay it. The Congress realized this and knew competition increases the quality of goods which would help the U.S. compete with companies outside the U.S. because the global market was forming during this time. The Congress knew that monopolies would stunt the expansion and growth of American industry and technology, which would hurt the U.S. against other countries. The nation’s view of antitrust regulation was that it would benefit all consumers because competition allows for better products and increased development. Businesses could not have a very big market share because that diminishes the ability of a new smaller business to enter the market and bring new ideas to the market. The nation and consumers want there to be competition because this lowers prices while quality of goods increases. It is a win-win situation for consumers and the American people. The liability of the creation of a monopoly should be the responsibility of the monopoly. The monopoly is creating the unfair trade and is able to control the price of goods. The consumers are the ones who are hurt in the end because of the monopolies.

What was Roosevelt’s analysis of the trust problem? What role should government play in resolving this problem and why? How should it do this? What should it not do?

Roosevelt became president in 1901 and had a plan that was between the Republican Laissez Faire policies and the Socialist policies. Roosevelt was able to gain the respect of the public, even though they didn’t want big government, because the trusts were growing in numbers and power. Roosevelt never opposed giant corporations because of their sheer size though. He believed that big corporations were more efficient than smaller ones, but believed that competition among these big corporations in the same field would be dangers and wasteful. Roosevelt felt that these large companies should be allowed to combine and cooperate, but they should not be allowed to use their size or power to oppress smaller producers and consumers. Roosevelt wanted to neutralize the power of the great corporations and he supported measures to extend the control of the federal government over the national economy. Roosevelt supported the creation of the Bureau of Corporations (1903), which investigated business practices of corporations and other businesses. Roosevelt argued that only an acting and strong government could bring control to big business and there should be different standards for “bad” trusts and “good” trusts.

I believe government need to regulate big businesses like Roosevelt. A business should be able to be as big as it wants with acquisitions and mergers but it should not be able to control 100% of the market. If a company controlled the whole market then it would affect every consumer, probably in a negative way. The government needs to protect the consumer and put down rules that do allow a company to get very big but not own 100% of the market and have extreme pricing power. There needs to be at least a little bit of competition to give the consumers a better product, being price and quality, through competition. The government should not take control of big businesses once they acquire a large market stake through success because a company should not be punished for that. If though, the company raises its prices without reason or for no reason lowers its prices into an area of net loss to reduce competition or entry into the field they should be punished.

How would you characterize the “rule of reason” and the dissenting opinion? What do you think has been the impact of this ruling?

Chief Justice Edward D. White proposed the “rule of reason” in the Standard Oil Case of 1911. It was difficult to solve by proof whether the particular contracts, combinations, or trusts involved in each case is or is not a “unreasonable” or “undue” restraint of trade. The “rule of reason” is a circumstance test asking whether the challenged practice promotes or suppresses market competition. The “rule of reason” states that only combinations and contracts that are unreasonably restraining trade are subject to actions under the antitrust laws and the possession of a monopoly is not inherently illegal. A dissenting opinion is when one or more justices disagree with the majority of the Supreme Court. Usually the justice writes an opinion of why they disagree with the majority decision. The dissenting opinion is used to get the public attention and get the public to also disagree with the majority opinion. In the end, the dissenting judge hopes that the Court will reconsider its decision and overturn it. I would then characterize these two to be amendments to the antitrust laws that were already in the forms of acts. The dissenting opinion lets a judge get there opinion out to the public and helps the public more of decide what is right and what is wrong in a judicial case, even if the case does not get overlooked again.

I believe the “rule of reason” does not add that much to the antitrust laws. I believe it lets there be more interpretation and this would then differ from judge to judge. Along with that I believe judges should be able to go against the majority ruling and show their opinion and support it with facts. The public needs to know both sides and they then can decide on their own. The majority decision is not always correct so by there being dissenting opinions more people hopefully will see the correct side and the court could then overturn the result.

How did Wilson view the problem of big business and antitrust? What role did he see for government and why? What did he see as the limits to involvement by the government?

Wilson was even more outspoken against the trusts than Roosevelt. Unlike Roosevelt, Wilson did not believe in government regulation of big businesses. Wilson wanted to use the antitrust laws to break up monopolies to restore competition, make businesses more efficient, and create a new type of individualism that had before made America a powerful nation. Wilson said, “If monopoly persists, monopoly will always sit at the helm of government. I do not expect monopoly to restrain itself. If there are men in this country big enough to own the government of the U.S., they are going to own it.” Wilson also said that monopolies are not inevitable and if they were, then the government would have to take hold of monopolies and regulate them. Monopolies, not being inevitable, then there have to be laws to break them up and prevent them from forming again. Wilson does not believe that these big combinations are inevitable and says he can prove they are not by the process of how they were started. Wilsons believes that it was the old form of competition that enabled these men to create their monopolies, so there has to be new systems established to stop it from happening again. Wilson believed that the government may not be able to control monopolies but can regulate competition. It is a criminal law of the U.S. for a company to go into a community and sell below cost for no other purpose than to squeeze out a competitor. Also, Under Wilson’s administration the Federal Trade Commission and the Clayton Antitrust Act were passed in 1914. Both of these new developments greatly strengthened the ability of the government to control corporations. The Clayton Antitrust Act made it illegal for directors of one corporation to be directors of another corporation in the same field which reduced the ability for trusts to be created.

What was Deb’s analysis of the problem of big business? What role did he see for government in ‘regulating’ big business and why? As a Socialist, what did he suggest should be the workers’ view of antitrust and regulation? How do you think he, as a Socialist, viewed big business and bigness, per se?

Eugene Debs believed that big business took away from the work of the working class. Debs believed that the workers should own and control their own jobs and not be at the mercy of the big businesses. Debs said that big business controlled the work environment and destroyed advances and innovations that would help the workers. Debs wanted people to think the only way to overcome big business and the capitalist class was to overthrow it. Debs had a very strong belief in unions and the power of the workers also. “When the owners of the trust finance a party to put themselves out of business; when they turn over their wealth to the people from whom they stole it and go to work for a living, it will be time enough to consider the merits of the Roosevelt Progressive Party” explained Debs, that only when big business was destroyed would be the time for a progressive party. Debs did not really want the government to regulate big business; he wanted the unions/workers to regulate the businesses they were a part of, so the power would be with the unions. He wanted the workers to get past big business and form unions to take control.

Being a socialist, Debs would agree with how socialism is an attempt to bring social organization, especially in the form of unions. From this social organization comes a new level of technology and progress which can then be fully taken advantage of. Capitalism and big business concentrates power and wealth within small segments of society that controls the means of production and derives its wealth through a system of exploitation, under the socialist point of view. Socialists do not want big business because power is located narrowly and the workers are more like slaves.

What is the role of the Federal Trade Commission? What powers does it have that are ‘new’ for antitrust law? How does it resolve some of the problems of Sherman Act antitrust activity? What is required to make it work? How did the Clayton Antitrust Act affect the enforcement of the Sherman Act?

The Federal Trade Commission is an independent agency of the U.S. established in 1914 by the Federal Trade Commission Act. The mission of the commission is the promotion of consumer protection and the elimination and prevention of harmfully anti-competitive business practices such as monopolies. The Federal Trade Commission had the power to investigate and prevent deceptive trade practices. If there were unfair methods of competition in or affecting commerce and unfair or deceptive acts affecting commerce they were illegal. This commission helps solve some of the ambiguous content that was in the Sherman Antitrust Act. Now the commission has the specific reason to act on anyone who is affecting the consumers or commerce. For the act to work, it is necessary for a company to be doing something inherently anti-competitive. This can also be interpreted so there is again misinterpretation. The company does not have to be a monopoly for this act to affect the company also.

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The Clayton Act was established in 1914 and it was established to prevent anti-competitive practices in the start up or beginning of anti-competition. There are four principle changes that affect the Sherman Antitrust Act from the Clayton Act. The first, price discrimination between different purchasers, if discrimination substantially lessens competition or tends to create a monopoly, is illegal. The second, sales where the buyer cannot go to different suppliers or where competition is lessened, is illegal. The third, mergers and acquisitions where the affect may substantially lessen competition is illegal. The Clayton Act also allows greater regulation of mergers since it does not require a merger-to-monopoly before a violation. The fourth is that any person cannot be the director of two or more competing corporations. The Clayton Act helped strengthen what was written in the Sherman Antitrust Act with these provisions.

Why were there so few convictions under the Sherman Act early on? What changed and why? What types of firms/industries were charged during the 1920s? Why has the prosecution of antitrust violations ebbed and flowed in American history since the beginning of the twentieth century?

At first, there were not many convictions under the Sherman Antitrust Act. This is because there was a very loose interpretation of the Act and the Act was not very clear. The Act, only being a few paragraphs, let there be a lot of room for the “monopolies” and corporations to interpret and present what they defined the rule/Act as. There were few convictions also because of the intense political pressure from the trusts and with the loose wording of the Act. The trusts pointed out that the Sherman Antitrust Act failed to define such key terms as combination, conspiracy, monopoly and trusts. Also, there was narrow judicial interpretation as to what constituted trade or commerce among the states.

Five years after its passage, the Supreme Court in effect reduced the Sherman Antitrust Act in the US vs. EC Knight Company in 1895. The Court ruled that the company had not violated the Act despite the fact that it controlled approximately 98% of the whole market place for that sugar industry. The court explained that the company’s control of manufacturing did not constitute control of trade. The standard that emerged from this decision applied a two part test to determine if a company was set up to have monopoly power. First, the company must possess monopoly power in its market and second, it must have improperly used acts to gain power or protect their power as a monopoly.

In 1920, the US Supreme Court relaxed antitrust regulations so that only “unreasonable” restraint of trade through acquisitions, mergers, and predatory pricing constituted a violation. Under Herbert Hoover in the 1920s, the government promoted business corporations and this continued with Calvin Coolidge who had a hands-off policy towards businesses. In the 1920s the companies that were charged were not just companies that were massive; it was mostly smaller businesses that were charged. Throughout history the Sherman Antitrust Act kept getting redone with the new acts and commissions that backed up and helped find trust companies. The prosecutions of new companies was able to flow because of these new acts that came about to “revise” the original Sherman Antitrust Act. When people had been able to find holes in the Sherman Antitrust Acts, these new Acts were there to help “patch” up those holes and let the process of trust busting continue.

Looking at the case against Microsoft, has the efficacy of antitrust law been reduced?

In the United States vs. Microsoft case Microsoft was being accused of abusing monopoly power on Intel based computers in its use of the Windows OS and web browser integration. The issue was whether Microsoft was allowed to bundle Internet Explorer browser with its Windows OS. Microsoft stated that the merging of the two was the result of innovation and competition and that the two were the same product. In the final settlement, Microsoft had to prevent from engaging in “predatory behavior” or other acts that might diminish the ability for another product to enter the market.

I do believe the efficacy of the Act has been reduced, I believe it is less “trusted” now. With this case the government got into the regulation of computer technology which could hinder the progress as a result and many people do not like the idea of a big government. In this case Microsoft was said to just get a “slap on the wrist” because they were not really punished. I believe they did not do anything wrong, Internet Explorer was part of the Windows OS and people who bought the OS were expecting to have a browser packaged with it. There would be no point for Microsoft to put a third party browser on their Windows OS because they built it. The OS is theirs and they have full rights to whatever goes into the OS and, therefore; they should be allowed to put their own browser integrated into the software. I believe the antitrust law needs to be redefined and the old law is looked down upon because it can be interpreted in various ways.

How did the success of antitrust law after 1900 affect the growth of oligopolies in the economy?

Growth of oligopolies was greatly diminished because acquisitions and mergers of smaller companies into bigger ones were reduced because of the laws. US Steel in 1901 had 62% of the market share and then in 1920 it only had 40% of the market share. The American Can Company in 1901 had 90% of the market share and by 1912 it was significantly reduced to 50% of the market share. Even though this is just showing one company from an industry it still shows that the laws were effective in breaking the companies down into smaller companies. These laws helped reduce the amount of oligopolies being constructed the same way it broke down monopolies and other oligopolies. The laws have diminished the amount of trusts between companies but there are still companies today that try to get around them. There are many companies who have been convicted of price fixing with their competitors to reach a higher level of market price, which in turn hurts the consumers. For example, Dow Chemical, Dupont, and Bayer, the biggest companies in the chemical industry, were price fixing in the early 21st century and there are still premonitions that they are still doing it today. The Acts have diminished the growth of oligopolies but then again people always will try to get around the law to increase their benefits.


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