Antitrust law consists of a body of statutes, judicial decisions, and enforcement activities designed to check business activities posing a threat to free‐market competition. The core antitrust concern with competition reflects a fundamental belief that economic questions are generally best determined in the American economy through a process of independent, competitive decision‐making by profit‐seeking firms striving to serve customers who seek maximum satisfaction through their choices among market alternatives. Antitrust law aims to protect economic competition by prohibiting collusive, exclusionary, and monopolistic practices that restrain competition and thereby pose a danger of increased prices and reduced output, quality, and innovation. It contrasts with other forms of economic regulation that directly prescribe the number, rates, and service offerings of particular firms, for example, in “natural monopoly” settings where economies of scale are thought to preclude active multifirm competition.

Basic Provisions and Long‐run Patterns.

Anti‐trust law originated in reaction to tremendous economic changes in late nineteenth‐ and early twentieth‐century America. Since that time, federal antitrust developments have dominated the field, although state antitrust efforts also were prominent prior to World War I and have regained significance in recent years. Federal antitrust law is founded on three main enactments. Section 1 of the Sherman Antitrust Act of 1890, the most important of these acts, focuses on group behavior in broadly banning “[e]very contract, combination … or conspiracy” in restraint of interstate or foreign trade commerce; section 2 primarily targets the activities of individual firms in its prohibition of monopolization and attempted monopolization. The Clayton Act of 1914 specifically addresses the competitive dangers arising from price discrimination, “tying” arrangements, exclusive dealing, mergers, and interlocking directorates. The Federal Trade Commission Act of 1914 sweepingly empowers the administrative agency it establishes to police ”unfair methods of competition.”

Violations of the Sherman Antitrust Act are punishable by substantial criminal penalties. In addition, private parties as well as the United States Department of Justice can seek injunctive relief against threatened violations of either the Sherman or Clayton Acts. The Federal Trade Commission is authorized to issue cease and desist orders ultimately enforceable through the federal courts to remedy breaches of either the Clayton Act or Federal Trade Commission Act. The United States and private parties also can collect three times the amount of the actual damages they have suffered as a result of conduct prohibited by the Sherman or Clayton Acts. Under parens patriae legislation passed in 1976, individual states can seek treble damages on behalf of natural persons residing within their borders who have been injured by Sherman Act violations.

Although grounded in legislative enactments, substantive antitrust doctrine since its inception has developed primarily through Supreme Court interpretation of federal antitrust statutes. Indeed, the centrality of the Court's doctrinal role and the widespread belief that these measures are fundamental to the maintenance of the American free enterprise system often have prompted suggested parallels between constitutional and antitrust jurisprudence.

Over time, antitrust enforcement and interpretation repeatedly have changed course, reflecting larger changes and patterns in American economic, political, and intellectual life. Ever since the first antitrust acts were passed, moreover, the nature and purpose of antitrust law have been the subject of recurring debate. Some jurists, scholars, and enforcement officials have conceived of antitrust law's protection of competition solely or primarily as a means to enhance economic efficiency and the overall maximization of social wealth. Others have placed greater stress on such ends as fairer wealth distribution, the preservation of individual business opportunity, and the protection of political freedom from potential threats posed by increased concentrations of private economic power. In recent years, even as such disagreements have continued, antitrust law has placed sharply increased emphasis on neoclassical economic perspectives stressing the promotion of economic efficiency. Today this trend prevails with respect to all four of the main types of conduct addressed by antitrust law: horizontal agreements among competitors, single‐firm activities directed toward the acquisition or maintenance of monopoly power, vertical arrangements among firms in a supplier‐purchaser relationship, and mergers.

Origins and Early Development.

Late‐nineteenth‐century antitrust legislation and case law built upon earlier English and American res‐ ponses to monopolies and restraints of trade. Early English and American restrictions on anticompetitive private behavior chiefly were contained in common‐law precedents on contracts, combinations, and conspiracies in restraint of trade. These precedents varied significantly among state jurisdictions and over time; no uniform body of American common law existed when the first antitrust laws were enacted.

As American markets expanded geographically in the post–Civil War decades, new technological innovations repeatedly boosted productivity in excess of demand, contributing to a sharp intensification of competitive rivalry in many lines of business. These developments prompted large numbers of late nineteenth‐ and early twentieth‐century American businesses to seek greater security and higher returns through various forms of multifirm combination. At first turning primarily to loose arrangements such as simple cartels, American businesses increasingly embraced tighter, more fully integrated combinations such as trusts, holding companies, and mergers beginning in the 1880s. As a series of major new trusts appeared in the later years of that decade, public concerns, which earlier had centered on disturbing railroad practices, shifted to focus more broadly on predatory business behavior, cartelization, and industrial concentration in general, prompting a burst of new antitrust activity at the state level. The perceived practical and legal limitations of state efforts, however, soon led to mounting popular pressure for new federal antitrust legislation, resulting in adoption of the Sherman Act of 1890.

In the debates preceding passage of the act, congressmen expressed strong support for the protection of competition and concerns to safeguard economic opportunity, fair consumer prices, efficiency, and political liberty. Scholars long have differed as to which of these values Congress primarily or even exclusively sought to promote. In late nineteenth‐century thinking, however, these goals and values typically were thought to be largely complimentary so that most congressmen may well have hoped to serve all of these ends simultaneously.

Neither the statute itself nor the congressional debates provided any detailed guidance as to the practical application of the act's general language. Congress generally sought to incorporate the traditional common‐law restraint of trade approaches of the state courts, without any detailed understanding of what those doctrines had become by 1890. Congress intended to delegate significant authority to the federal courts to develop more precise doctrine. Passage of the act was an important symbolic affirmation of the basic ideal of competitive free markets, and the statute's enforcement provisions went substantially beyond earlier common‐law doctrines that provided merely for the legal unenforceability of restrictive trade agreements.

The first decade after passage of the act saw only limited federal enforcement, partly as a result of the Supreme Court's restrictive reading of congressional commerce‐clause authority in its rejection of a challenge to a monopolistic merger of sugar refineries in United States v. E.C. Knight Co. (1895), the Court's first consideration of the statute. Within a few years, however, the Court strongly supported the application of the act in a variety of other contexts, beginning with cases against railroad cartels in the late 1890s. A dramatic acceleration in the growth of overall economic concentration as a result of a major new wave of mergers in the late 1890s and early 1900s heightened public apprehension and led to increased federal enforcement efforts under Presidents Theodore Roosevelt and William Howard Taft. These efforts produced a number of Supreme Court victories, climaxing in the Court's decisions in Standard Oil v. United States (1911) and United States v. American Tobacco Co. (1911). In those cases, the Court ordered the dissolution of two of the greatest industrial combinations of the day to remedy violations of the Sherman Act, although in a way that did not effectively dissipate the concentrated economic power established by those combinations.

During these years, the Supreme Court debated the proper general standard of Sherman Act analysis. Initially dominant was Justice Rufus W. Peckham's rejection of any defense of “reasonableness” for challenged restraints and his view that the act condemned any agreement directly and immediately restraining competition and therefore trade in interstate or foreign commerce. Chief Justice Edward D. White was the chief proponent of the alternative rule “rule of reason” position that ultimately triumphed in the Court's Standard Oil and American Tobacco opinions. Despite its name, Chief Justice White's framework contemplated that certain types of agreements, because of their inherent nature, could be summarily condemned as anticompetitive without any extended inquiry into reasonableness. This aspect of the opinion foreshadowed the Court's subsequent, more extensive development of the central, but often troubled, antitrust distinction between activities condemnable “per se” and those to be judged only after a “rule of reason” examination of purposes, market power, effects, and possible less restrictive alternatives available to achieve particular legitimate ends.

The Supreme Court's affirmation of a “rule of reason” approach revitalized political controversy over antitrust law. This subject became a main focus of the three‐way presidential race between Theodore Roosevelt, William Howard Taft, and Woodrow Wilson in 1912. Following Wilson's election, efforts to buttress the Sherman Act resulted in the 1914 passage of the Clayton and Federal Trade Commission Acts.

During World War I and the 1920s, concern over anticompetitive and monopolistic behavior substantially declined as Americans came to accept the increased level of economic concentration established during the Progressive Era, associating it with heightened economic prosperity. In these years, federal officials and the Supreme Court continued to condemn nakedly anticompetitive arrangements such as price fixing but encouraged other forms of cooperation among competing businesses such as the sharing of general data on business conditions.

From the New Deal to the 1970s.

Public confidence in business and in the health of American markets collapsed with the stock market crash of 1929. Yet the federal government in the early years of President Franklin D. Roosevelt's New Deal turned not to renewed antitrust enforcement but instead to expanded business cooperative efforts under the National Industrial Recovery Act. The Supreme Court held that act to be unconstitutional in Schechter Poultry Corp. v. United States (1935), however, and later New Deal efforts proceeded in a very different direction. Spurred by a new economic downturn in 1937, concerns over the consequences of contemporary cartelization in Europe, and growing economic scholarship criticizing concentrated markets as typically productive of troublesome economic performance, federal antitrust activity soon expanded greatly. The intensified antitrust efforts begun in the later 1930s did not result in any significant rollback of the levels of economic concentration established in the early years of the twentieth century. They did, however, set the stage for a continued, bipartisan commitment in the succeeding decades to a much higher level of antitrust activity than had prevailed before the New Deal.

In this setting of expanded enforcement, anti‐trust case law grew substantially. In numerous decisions through the early 1970s the Supreme Court strongly supported the vigorous application of federal antitrust law, repeatedly displaying substantial skepticism toward cooperative business agreements, single‐firm activities promoting market preeminence, and mergers. While the Court continued to acknowledge that certain types of cooperation among competitors, such as general data dissemination or reasonably limited joint ventures, could improve efficiency and competitive performance in particular circumstances, the Supreme Court greatly increased its use of summary, per se rules to condemn such collective agreements as price fixing, output limitation, market division, and concerted refusals to deal, as well as vertical resale price maintenance agreements, non‐price restrictions imposed by individual manufacturers on dealers, and most tying arrangements whereby the purchase of one good is conditioned on the simultaneous purchase of another.

The Court strongly endorsed the landmark monopolization opinion in United States v. Aluminum Co. of America (Alcoa) (2d Cir., 1945), which exhibited considerable suspicion of the legitimacy of dominating market power in general and stressed the social and political as well as economic importance of antitrust law. While requiring both dominant market power and its acquisition or maintenance through wrongful conduct distinguishable from competition on the merits as elements of Sherman Act monopolization, the Alcoa decision limited the range of conduct deemed to be mere skill, foresight, and industry to a very narrow ambit.

Supreme Court merger decisions in the post–New Deal decades initially departed from these trends, permitting very large acquisitions under the Sherman Act. The Clayton Act's original 1914 ban on anticompetitive mergers rarely was invoked because it applied only to stock and not asset acquisitions and did not extend beyond horizontal mergers to reach vertical and conglomerate acquisitions. Renewed economic, social, and political concerns for rising economic concentration in the 1940s, however, prompted Congress to amend the act to close these loopholes in 1950, leading the Court to limit permissible mergers by the 1960s. The Court then greatly limited the range of permissible merger activity, for example, condemning horizontal mergers creating companies with combined market shares as low as 5 percent. Exhibiting strong concerns for even early market trends toward increasing concentration, the Court acted to protect smaller competitors endangered by the creation of new, more efficient merged entities even where such protection sacrificed new cost savings and lower consumer prices potentially obtainable through the mergers the Court condemned.

Modern Antitrust Law.

Over the last quarter‐century, major changes in the structure and patterns of global and national economic life have combined with fundamental shifts in the scholarly analysis of market behavior to alter antitrust enforcement and interpretation dramatically. Many areas of economic life have become more globalized, intensifying the competition faced by many firms in the United States at the same time that sentiment supporting government regulation in general has declined. Beginning in the latter half of the 1970s, the Supreme Court, lower federal courts, and federal enforcement agencies increasingly embraced strong economic critiques of previously prevailing antitrust doctrine that were urged most prominently by economists and law professors associated with the University of Chicago. These influential critical analyses heavily stressed the efficiency‐enhancing potential of diverse types of horizontal and vertical agreements, single‐firm activities, and mergers that previously had been viewed with considerable suspicion or hostility in antitrust law, and reflected a fundamental belief that in general markets powerfully tend to remain competitive without the need for potentially counterproductive government intervention.

Such neoclassical economic critiques powerfully continue to hold sway over much of current antitrust doctrine and enforcement philosophy. Over the last decade, however, economic life and scholarly outlook have continued to evolve and to affect the course of antitrust development in new ways. For example, antitrust scholars, enforcers, and courts have focused intently on the applicability of antitrust law to high‐technology companies in a new “information age” economy in which intellectual property development and protection have assumed magnified importance. At the same time, scholars, enforcers, and courts have debated the desirability of refining aspects of antitrust doctrine once again in light of still‐developing “post‐Chicago” economic perspectives. These perspectives posit a greater prevalence of market imperfections facilitating anticompetitive behavior than have been acknowledged by leading Chicago School theorists. To date, such post‐Chicago analyses have influenced the work of scholars and government enforcement agencies more than that of judges.

In the realm of case law development, the Supreme Court over the last twenty‐five years has retreated substantially, but not completely, from the invocation of per se rules for judging horizontal and vertical agreements. The Court's movement away from per se analysis was signaled in its landmark opinion overturning the Court's decade‐old per se condemnation of nonprice vertical restrictions on dealers (Continental T.V., Inc. v. GTE Sylvania, Inc., 1977). The Court found that such “intrabrand” restraints pro‐competitively can induce more aggressive interbrand promotional efforts by dealers desiring to reap the benefits of their own promotional efforts, by restricting the intensity of intrabrand rivalry and eliminating “free riders” who costlessly might take advantage of other dealers' expensive promotional activity.

The Court similarly has narrowed the scope of per se treatment for horizontal agreements. While stressing that Sherman Act analysis focuses narrowly on whether a challenged restraint promotes or suppresses competition, the Court nevertheless has looked not simply to whether any business rivalry has been tempered, but also to whether any such effects have been offset by new gains in efficiency and output. At the same time, government criminal enforcement efforts against naked cartel restraints, which remain subject to per se condemnation, have intensified since the early 1980s. The number of prosecutions brought annually has increased greatly and government prosecutors recently have won convictions against long‐standing global cartels generating enormous amounts of illegal profits. Government prosecutors also successfully have pushed for the imposition of substantially increased fines and jail sentences for criminal antitrust convictions. In the merger area, the Supreme Court in the mid‐1970s substantially altered its previously restrictive approach to mergers, requiring a more thorough economic assessment of the likely competitive impact of particular acquisitions before mergers could be declared unlawful (see United States v. General Dynamics Corp., 1974). Since then, the Supreme Court has said little regarding substantive merger law standards, leaving further development to the lower federal courts. The federal courts of appeal have undermined reliance on presumptions from market share and market concentration data in merger cases, and have emphasized that strong evidence that new entry into a market will undercut inferences that a merger in that market will increase market power or facilitate its exercise.

Much of the change in the antitrust treatment of mergers since the 1970s has resulted from changes in federal enforcement policy. Although still reflecting concern that particular mergers may increase the risks of multi‐firm collusion or single‐firm market power, the revised merger guidelines adopted by the Department of Justice in the 1980s emphasized the potential economic benefits of merger activities and established substantially higher thresholds for antitrust challenges than had prevailed in earlier in earlier case law and department philosophy. The 1992 joint Department of Justice and Federal Trade Commission revised guidelines heightened the emphasis given to the unilateral exercise of market power by newly merged entities and provided more detailed guidance for assessing the potential for new entry to counteract the adverse effects of a merger. More recent guideline revisions expressed a greater willingness to allow otherwise problematic mergers where sufficiently strong evidence demonstrates that a merger likely would generate important, otherwise unattainable, efficiency gains.

In its limited modern treatment of monopolization issues, the Supreme Court contributed to continuing controversy over the extent of any obligation to cooperate with smaller rivals, the legality of various practices raising rivals' costs, and the appropriate treatment of claims of predatory pricing. The Court has held, for example, that a dominant firm may not severely disadvantage a smaller competitor by discontinuing a long‐established cooperative marketing arrangement, at least in the absence of any plausible efficiency justification (Aspen Skiing v. Aspen Highlands Skiing Corp., 1985). On the other hand, the Court has tightened the criteria for proving unlawful predatory pricing, requiring more careful attention to both market structure and the relationship between a defendant firm's costs and the prices it charged during the period of alleged predation. Two major milestones in government anti‐monopolization efforts were reached in 1982. In that year, the government dismissed its multiyear suit against the International Business Machines Corporation and settled its suit against the American Telephone and Telegraph Company. The latter settlement resulted in the largest divestiture in antitrust history, separating the company's long distance service from its local operating companies. The AT&T litigation stood as the government's last major monopolization case until the mid‐1990s, when the United States and several states charged the Microsoft Corporation with illegal monopolization and other antitrust violations.

The Microsoft case captured public attention as only relatively few cases, like the Standard Oil case of 1911, had in the history of antitrust law. The case highlighted the rise of expanded concerns over the applicability of antitrust law to “new economy,” high‐technology industries in which “network effects” (or “scale economies of consumption”) play a central role. In “network” industries, where the consumer value of a particular product, such as a telephone or a personal computer operating system, increases as the number of consumers using that product increases, firms have a tremendous incentive to compete to have their own product accepted as the industry standard. Once a standard is established, however, it may be difficult for other firms to challenge a dominant industry incumbent.

At its core, the complaint against Microsoft charged that the company had engaged in a variety of practices not justified as means to further business efficiency, that were undertaken with the aim of thwarting the possible rise of effective new competition to Microsoft's monopoly in operating systems for Intel‐based personal computers. The United States District Court hearing the case found Microsoft guilty of illegal monopolization and ordered the parties to submit plans for the break up of the company into an operating system company and a software applications firm. The United States Court of Appeals for the D.C. Circuit upheld the great majority of the district court's findings as to liability, concluding that Microsoft had failed to rebut government prima facie showings of exclusionary conduct through demonstration of efficiency justifications for Microsoft's challenged conduct. After the Court of Appeals remanded the case for further proceedings as to remedy, the federal government and most, but not all, of the state plaintiffs joined in a settlement limiting Microsoft's conduct but not requiring corporate restructuring. The United States District Court for the D.C. Circuit approved the settlement, retaining continuing jurisdiction to take any appropriate action necessary in the future to enforce the decree. That action currently is on appeal in the D.C. Circuit, along with the district court's rejection of the non‐settling states' request for further relief.

While most antitrust cases today still are brought by private parties rather than by government enforcers, the Supreme Court since the 1970s has made the maintenance of private antitrust actions more difficult by tightening standing requirements and encouraging lower courts to screen out more cases on the ground that the plaintiff's theory is economically implausible. At the same time, the efforts of federal antitrust enforcers have been supplemented by the antitrust enforcement activities of attorneys general in various states and, in a global context, by the efforts of antitrust enforcement officials in other nations. More and more nations now have adopted their own antitrust laws, and in recent years there has been substantially increased cooperation among antitrust authorities in various countries designed to check more effectively anticompetitive activity crossing national borders.

Conclusion.

Although the major developments discussed here have dominated antitrust law since the late nineteenth century, antitrust analysis also has focused on such other important issues as the scope of various exceptions to antitrust coverage, including exceptions for restraints attributable to state rather than private decision making and for First Amendment–protected activities. Today, in the midst of ongoing debate over economic analysis and substantive doctrine, the meaning of antitrust law's protection of competition continues to evolve as American economic, intellectual, and political contexts continue to change.

See also Capitalism.

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