A:

Antitrust laws - also referred to as "competition laws" - are statutes developed by the U.S. Government to protect consumers from predatory business practices by ensuring that fair competition exists in an open-market economy. Antitrust laws are applied to a wide range of questionable business activities, including but not limited to:


  • Market Allocation:

    Suppose my company operates in the Northeast and your company does business in the Southwest. If you agree to stay out of my territory, I won't enter yours, and because the costs of doing business are so high that startups have no chance of competing, we both have a de facto monopoly.

  • Bid Rigging: There are three companies in an industry, and all three decide to quietly operate as a cartel. Company 1 will win the current auction, so long as it allows Company 2 to win the next and Company 3 to win thereafter. Each company plays this game so that all retain current market share and price, thereby preventing competition.
  • Price Fixing: My company and your company are the only two companies in our industry, and our products are so similar that the consumer is indifferent between the two except for price. In order to avoid a price war, we sell our products at the same price to maintain margin, resulting in higher costs than the consumer would otherwise pay.

At the core, antitrust provisions are designed to maximize consumer welfare. (For more on this read, Antitrust Defined.)

This question was answered by Justin Bynum.

RELATED FAQS
  1. What companies have been targeted for anti-trust action in the 21st century?

    Several companies have been targeted for antitrust action in the past decade. These companies range from food service to ... Read Answer >>
  2. Why was Microsoft subject to antitrust charges in 1998?

    On May 18, 1998, the Department of Justice filed antitrust charges against Microsoft (Nasdaq:MSFT ). The charges were brought ... Read Answer >>
  3. Why is the 1982 AT&T breakup considered one of the most successful spinoffs in history?

    AT&T had a history reaching back to 1885 and, as a government-supported monopoly, was a highly profitable company. Colloquially ... Read Answer >>
  4. Do I still owe debt collectors for a debt that's past the statute of limitations ...

    Learn more about the statutes of limitations that govern certain personal debts and why you maintain obligations as a debtor ... Read Answer >>
Related Articles
  1. Small Business

    What are Antitrust Laws?

    Antitrust laws regulate competition between companies.
  2. Small Business

    Antitrust Defined

    Check out the history and reasons behind antitrust laws, as well as the arguments over them.
  3. Personal Finance

    Why We Need Antitrust Laws (MSFT, AAPL)

    A look at antitrust laws in the United States and the many anticompetitive practices they safeguard against.
  4. Insights

    Government Regulations: Do They Help Businesses?

    These rules are in place to protect consumers and help businesses thrive at the same time.
  5. Insights

    A History Of U.S. Monopolies

    These monoliths helped develop the economy and infrastructure at the expense of competition.
  6. Investing

    Australian Watchdog Attacks Dow, DuPont Deal (DOW, DD)

    Australia's corporate watchdog is one more obstacle the companies must overcome.
  7. Investing

    It's Time To Short Amazon: Kass

    Is it time to hit the panic button on Amazon? One fund manager says so.
  8. Investing

    Newspapers Seek to Bargain With Facebook, Google

    The newspaper industry is asking Congress to enable them to negotiate with the online giants.
  9. Small Business

    How Southwest Airlines Has Won Over Travelers

    Understand what Southwest Airlines' competitive advantages are and how they manage to edge out other airlines.
RELATED TERMS
  1. Antitrust

    The antitrust laws apply to virtually all industries and to every ...
  2. Sherman Antitrust Act

    The Sherman Anti-Trust Act is landmark 1890 U.S. legislation ...
  3. Predatory Dumping

    A type of anti-competitive event in which foreign companies or ...
  4. Federal Trade Commission - FTC

    An independent federal agency whose main goals are to protect ...
  5. United States V. The South-Eastern Underwriter Association

    A United States Supreme Court case involving the federal antitrust ...
  6. Open-Market Rate

    Rate of interest that is paid on any debt security that trades ...
Hot Definitions
  1. Interest Expense

    The cost incurred by an entity for borrowed funds. Interest expense is a non-operating expense shown on the income statement. ...
  2. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  3. Pro-Rata

    Used to describe a proportionate allocation. A method of assigning an amount to a fraction, according to its share of the ...
  4. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  5. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  6. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
Trading Center