What is the 'Sherman Antitrust Act'

The Sherman Antitrust Act is landmark 1890 U.S. legislation which outlawed trusts — monopolies and cartels — to increase economic competitiveness. As a means to regulate interstate commerce, the law is a broad and sweeping attempt to address the use of trusts as a tool for placing the control of a number of key industries into the hands of a limited number of individuals.

Breaking Down 'Sherman Antitrust Act'

The Sherman Antitrust Act was proposed in 1890 by Senator John Sherman from Ohio and was passed as 15 U.S.C. §§ 1-7 and amended by the Clayton Antitrust Act in 1914 in the same year by the 51st U.S. Congress. Passed at the height of what is known as the "Gilded Age" in American history, the legislation is an early example of capitalist "competition law" designed to ensure that the economic playing field remained competitive.

It is important to recognize what late nineteenth-century legislators understood trusts to represent. Today, it means a financial relationship in which one party gives another the right to hold property or assets for a third party, but in the 19th century, "trust" became an umbrella term for any sort of collusive or conspiratorial behavior that was seen to render competition unfair. It was designed not to prevent monopolies achieved by honest or organic means, but those which resulted from a deliberate attempt to dominate the marketplace. It especially targeted big corporations operating in multiple states, as Congress justified their radical new regulations on their constitutional right to regulate interstate commerce. 

Sherman Antitrust Act Sections

The Sherman Antitrust Act is broken down into three sections. Section 1 defines and bans specific means of anticompetitive conduct. Section 2 addresses the end results that are by their nature anticompetitive. As such, Sections 1 and 2 act to prevent the violation of the spirit of the law while still remaining within its bounds. Section 3 extends the guidelines and provisions in Section 1 to the District of Columbia and U.S. territories.

Sherman Antitrust Act Impact

The legislation was passed at a time of extreme public hostility towards large corporations like Standard Oil and the American Railway Union which were seen to be unfairly monopolizing certain industries. This outcry sprang from both consumers, who were being damaged by exorbitantly high prices on essential goods, and competitors in production, who found themselves shut out of industries because of deliberate attempts by certain companies to keep other enterprises out of the market. The Act received immediate public approval, but as the legislation's definition of concepts like trusts, monopolies and collusion were not clearly defined, few business entities were actually prosecuted under its measures.  

However, the popular demand for the Act signaled an important shift in American regulatory strategy towards business and markets. After the nineteenth-century rise of big business, American lawmakers reacted with a drive to regulate business practices more strictly. The Sherman Antitrust Act paved the legislative road for more specific laws like the Clayton Act. Measures like these had widespread popular support, but lawmakers were also motivated by a genuine desire to keep the American market economy broadly competitive in the face of changing business practices. For more, see the Federal Trade Commission's guide to Antitrust Laws.

RELATED TERMS
  1. Monopoly

    A monopoly refers to a sector or industry dominated by one corporation, ...
  2. Celler-Kefauver Act

    One of several U.S. laws designed to prevent certain mergers ...
  3. United States V. The South-Eastern ...

    A United States Supreme Court case involving the federal antitrust ...
  4. Robinson-Patman Act

    A federal law passed in 1936 to outlaw price discrimination. ...
  5. Investment Company Act of 1940

    The Investment Company Act of 1940 was created through an act ...
  6. Investment Advisers Act of 194 ...

    The Investment Advisers Act of 1940 is a U.S. federal law that ...
Related Articles
  1. Small Business

    What is an antitrust law?

    Learn about antitrust laws or "competition laws." These statutes protect consumers from predatory business practices by ensuring fair competition exists.
  2. Investing

    Wall Street History: Railroads And Rockefeller

    This week in financial history marks the beginning of antitrust legislation and a huge leap for labor unions.
  3. Investing

    Dow-DuPont Deal May Face EU Objections (DOW, DD)

    EU regulators could issue a formal statement of objections next month for the proposed merger between Dow and DuPont.
  4. Insights

    Roger Ailes Wants to Sue New York Magazine

    Ailes will be represented by the same lawyer who took down Gawker Media for Hulk Hogan and Peter Thiel.
  5. Personal Finance

    Google Faces EU Antitrust Charges (GOOGL)

    Google, which could be fined up to $7.4 billion, has been accused of anti-competitive practices.
  6. Taxes

    Possible Effects Of The Online Retail Tax

    The U.S. Senate has passed a bill that will impose a sales tax on online retailers. Discover how the Marketplace Fairness Act could affect your bottom line.
  7. Insights

    The SEC: A Brief History Of Regulation

    The SEC has continued to make the market a safer place and to learn from and adapt to new scandals and crises.
  8. Investing

    How Do Financial Regulations Affect Smaller Banks?

    Not to big to fail? We explain how US financial regulations affect smaller banks.
  9. Investing

    Early Monopolies: Conquest and Corruption

    Historically, monopolies can be very effective, but they are also known for their abuse of power.
  10. Investing

    5 Big Tech Stocks' Largest Threat May Be Uncle Sam

    Looming government regulation could thwart the spectacular growth of the 5 so-called FAAMG stocks.
RELATED FAQS
  1. What are the most famous monopolies?

    Learn about famous monopolies from Carnegie Steel to Comcast that challenge free-market competition and encourage government ... Read Answer >>
  2. What major laws regulating financial institutions were created in response to the ...

    Read about the major federal responses to the financial crisis of 2008, such as the Dodd-Frank Wall Street Reform Act and ... Read Answer >>
  3. What are key government regulations that affect investing in the banking sector?

    Discover how the global financial crisis of 2008 changed the face of banking in the United States and around the world by ... Read Answer >>
  4. What does it mean when a utility company has a natural monopoly on a market?

    Learn what it means when a utility company has a natural monopoly on a market and why natural monopolies are heavily regulated ... Read Answer >>
  5. What factors influence competition in microeconomics?

    Find out what influences competition in microeconomics and how perfect competition, monopoly and oligopoly vary in their ... Read Answer >>
Hot Definitions
  1. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  2. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  3. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  4. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  5. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  6. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
Trading Center