Antitrust law regulates the establishment, utilization, and exploitation of market dominance. In certain regions like the United States, it is synonymous with competition law. However, in the European Union, antitrust refers specifically to the regulation of dominant market behavior and anti-competitive agreements, excluding merger control.
US Antitrust Laws
These laws safeguard fair market competition, protect consumers from monopolistic practices, and ensure economic fairness.
The Sherman Antitrust Act
The Sherman Antitrust Act serves to curb anti-competitive behavior by prohibiting agreements among competitors to fix prices, rig bids, or restrict competition. Additionally, it deems monopolizing or attempting to monopolize a market as illegal. A firm is considered to have an unlawful monopoly if it has market power for a product or service and has obtained or maintained that power through suppressing competition via anti-competitive conduct. Offenses under the Sherman Act can be prosecuted either criminally or civilly.
The Clayton Act
The Clayton Act aims to foster fair competition and prevent practices detrimental to consumers. It prohibits actions that may hinder competition, such as illegal mergers, tying agreements, and predatory pricing. Illegal mergers occur when two companies amalgamate in a manner that significantly reduces competition or tends to create a monopoly. Such mergers can lead to higher prices or reduced product choices for consumers and lower wages or limited employment options for workers. Tying agreements, where a company compels customers to purchase one product to access another, restrict consumer choice and competition. Similarly, predatory pricing, the practice of setting prices below cost to eliminate competitors, harms competition and may result in higher prices and lower wages in the long run.
Furthermore, the Clayton Act prohibits individuals from serving on boards of competing corporations to maintain competitive integrity. This practice prevents the sharing of sensitive information and coordination of actions that could undermine fair competition.
Anticompetitive Conducts / Behaviours
Antitrust, also known as competition law, aims to eliminate barriers to competition, thereby improving market efficiency for consumers and other market players. It primarily targets three categories of behavior: (i) agreements, (ii) conduct by individual firms, and (iii) mergers and acquisitions. Typically, antitrust laws deem anticompetitive agreements, anticompetitive practices by dominant firms or monopolies, and anticompetitive mergers as illegal.
Agreements
Under the United States law, Section 1 of the Sherman Act prohibits "restraints of trade," which encompasses anticompetitive agreements. Some agreements, known as "naked restraints," are inherently anticompetitive, lacking any efficiency or innovation benefits, and are deemed illegal per se without further inquiry. For instance, agreements among competitors to fix prices, allocate production or divide markets (known as "cartels") fall under this category. Agreements not falling under illegal per se are evaluated under a rule of reason, where their anticompetitive effects are weighed against their pro-competitive aspects. Efficiencies and innovation are considered procompetitive factors.
In the European Union, antitrust provisions are outlined in the Treaty on the Functioning of the European Union ("TFEU"). According to this treaty, agreements that have the object or effect of restricting or distorting competition are invalid, unless they can be justified by demonstrating that they are productive, efficient, and beneficial for consumers. Naked cartels, which inherently restrict competition, are considered anticompetitive by object and rarely meet the requirements for justification.
Unilateral Conduct
In the US, the Sherman Act prohibits monopolization and attempts to monopolize. For a firm to be liable, it must have monopoly power and use it in anti-competitive ways. US law is cautious about condemning unilateral acts to avoid stifling pro-competitive incentives. In contrast, EU competition law prohibits abuse of dominant position, which doesn't necessarily require monopoly power, and bans both exploitative and exclusionary conduct. (The Intel v. Commission)
Mergers
US antitrust laws prohibit mergers that would substantially harm competition. In comparison, EU merger regulations prohibit mergers that significantly impede effective competition. Both aim to prevent mergers likely to harm competition by significantly increasing market power or impeding consumer benefits. Horizontal mergers (between competitors) are most scrutinized, but mergers between buyers and suppliers, potential rivals, or conglomerates may also face scrutiny. EU law tends to be more stringent than US law, especially regarding non-horizontal mergers.