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. Antitrust

    Antitrust laws apply to virtually all industries and to every ...
  2. Monopoly

    A monopoly is a situation in which one corporation, firm or entity ...
  3. Canadian Competition Act

    The Competition Act is the Canadian federal law that governs ...
  4. Securities Act Of 1933

    The Securities Act Of 1933 is a federal piece of legislation ...
  5. Robinson-Patman Act

    The Robinson-Patman Act is a federal law passed in 1936 to outlaw ...
  6. Natural Monopoly

    A natural monopoly is the domination of an industry or sector ...
Related Articles
  1. Small Business

    How Monopoly Antitrust Laws Affect Consumers

    Monopolies often receive a negative reception, but sometimes they can benefit consumers.
  2. Insights

    A Short History of the US Federal Trade Commission

    Since the early 1900s, the Federal Trade Commission has preventing anticompetitive, deceptive, and unfair business practices.
  3. 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.
  4. Insights

    Wall Street History: The NYSE Is Born, Bubbles Form

    This week in financial history saw the birth of the NYSE an attempt to destroy Microsoft, and much more.
  5. 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.
  6. 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.
  7. Insights

    Financial Regulations: Glass-Steagall to Dodd-Frank

    Here are some of the most important financial regulations that have been established.
  8. Investing

    Google Fined By India's Antitrust Body for 'Search Bias'

    India’s watchdog said Google steered certain search queries to its own specialist comparison pages in order to receive commission payments.
  9. Retirement

    How To Set Up A Trust Fund In Australia

    No, they're not just for the super-rich. But you need to know the rules.
  10. Financial Advisor

    Understanding How Top Trust Companies Operate

    Trust companies perform a wide range of services related to investment and asset management. Learn why to use a trust company and what they can do for you.
RELATED FAQS
  1. What are the legal barriers to vertical integration?

    Learn how embarking on a vertical integration through a merger is liable to run into legal barriers if the integration is ... Read Answer >>
  2. What are Common Examples of Monopolistic Markets?

    Providers of water, natural gas, telecommunications, and electricity have all been historically monopolistic markets. A monopoly ... Read Answer >>
  3. How are investment banks regulated in the United States?

    Read about the extensive regulations placed on investment banks in the United States, beginning with the Glass-Steagall Act ... Read Answer >>
  4. Are there any legal monopolies in America or Europe?

    Legal monopolies continue to exist in the United States and Europe despite the current trend against their recognition and ... Read Answer >>
  5. How does a monopoly contribute to market failure?

    Read a simple overview of the theory of market monopoly, where it originated and some contemporary challenges to the classical ... Read Answer >>
Trading Center