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Chapter 4 Outline:
4.1 Why Competition is Important for Consumers
4.2 Antitrust and The Federal Trade Commission (FTC)
4.3 Wheeler-Lea Act
Introduction
In the late 1800s and early 1900s, a “trust” was the organization of multiple businesses in the same industry formed with the intention of controlling the entirety or near entirety of said industry. John D. Rockefeller built Standard Oil and Andrew Carnegie built U.S. Steel into two of the most powerful and ruthless trusts in the United States. The slashing of wages, union busting, undercutting competitors’ prices to force them out of business, and backroom government deals, were some of the tactics used by these businessmen, often characterized by the term “robber barons.” By 1865, Standard Oil had become the biggest and most profitable organization in the world, and by 1882, Standard Oil gained control of over 90% of oil refineries in the United States. As the trusts grew, so did the pushback from the general public, eventually leading Congress to take action with the Sherman Antitrust Act of 1890.
The Sherman Antitrust Act was the first legislation that prohibited the formation of trusts or other monopolies and prohibited other anti-competitive behaviors. Initially, however, few antitrust cases brought by the federal government were successful, as courts generally only applied the law against unions as illegal combinations, rather than limiting the formation or breakup of trusts as Congress intended. Not until 1911, did a court find Standard Oil to be in violation of the Sherman Antitrust Act and ordered the dismantling of Standard Oil’s 33 most important affiliates.
The Clayton Act, introduced in 1914 as an An Act To supplement existing laws against unlawful restraints and monopolies, and for other purposes, it sought to prevent anticompetitive practices before a trust could be built. The Sherman and Clayton Act, among others, continue to serve an important function for the government to prevent exploitation of consumers when it comes to competitive behavior.
4.1 Why Competition is Important for Consumers
By the end of this section, you will be able to:
- Explain the importance of competition for consumers
Imagine if your area had only one grocery store, one car dealership with only one brand of car, or one store to purchase one brand of phone. Without competition from other grocers, the grocery store may not have the incentive to lower prices. Without other car dealers, the dealer or store may not have the incentive to offer a variety of models of cars or phones. Competition is about keeping prices low, giving consumers a large selection of choices, and high quality service.
Though consumers cannot do much against large corporations themselves in terms of breaking them up in the name of antitrust law, consumers do need to be aware of how large corporations impact them through limiting competition. Protecting competition is one of the main purposes of antitrust law. Ensuring consumers have c