Clayton Antitrust Act

CLAYTON ANTI-TRUST ACT TEXT What is the Clayton Anti-Trust Act? The Clayton Anti-Trust Act of 1914 was an addition to the Sherman Antitrust Act of 1890 that protected consumers against harmful, anti-competitive business arrangements such as monopolies and cartels by defining prohibitions and an enforcement scheme. Discussion of Price Discrimination The Clayton Anti-Trust Act discusses the effects of price discrimination, which is the sale of goods of services by an entity at different prices to different groups of consumers. This is considered an anti-competitive practice as it indicates the power of the entity to fix and dictate prices for goods and services in order to hamper or eradicate competition. In this pricing scheme, the commercial entity will charge every consumer individually according to his or her willing to pay for the good or service. This can be harmful the consumer as it eliminates the consumer surplus, which would have saved the consumer money. Instead, paying exactly what the consumer is willing to pay, the consumer is likely to pay far beyond the manufacturing costs of the item. Price discrimination may hurt suppliers as well buy making it difficult to compete with artificially low prices. If a large company seeking to increase its market share decides to price goods in a market far below what any other supplier can afford to charge, then the supplier will collapse under this predatory pricing scheme. Once the larger commercial interest achieves dominance over a good or service market, they may dictate pricing as they please, which is an anti-competitive measure that the Clayton Anti-trust Act attempts to blunt. The bill’s text specifically states that price discrimination tends to “create monopolies in any line of commerce.” In terms of this act, while it cannot outlaw price discrimination, it can control agreements and dealings that would constitute price discrimination and take rectification measures. Mergers and Acquisitions This is one of the more important features of the Clayton Anti-Trust Act and remains in effect today. This requires commercial entities that intend to form larger enterprises through mergers and acquisitions notify the Federal Trade Commission and the Department of Justice Antitrust Division if they exceed certain thresholds that are dependent on GDP and adjusted on a yearly basis. The controls on mergers and acquisitions prevent one entity from gaining an unfair advantage and dominating a market, which would allow it to engage in anti-competitive pricing and other abuses of their controlling interest. It is the responsibility of government authorities to ensure that mergers will not substantially lessen competition. The Clayton Anti-Trust Act specifically mentions holding companies as another means to achieve a monopoly through holding the stocks of other companies in the same manner as the trusts that the Sherman Act attempted to eradicate. Exclusive sales contracts Also known as exclusive dealing, this is mostly illegal in the US unless registered and approved by the federal government. It prevents the entry of new firms into the market by preventing potential suppliers or outlets from dealing with these new firms. This presents a type of non-competitive market condition called vertical integration that can be potentially harmful to the consumer if the supplier has control over all phases of the manufacturer of the product, from the raw material extraction to final resale, effectively allowing them to set an unfair price due to lowered input costs. If this advantage affects the competitiveness of the markets, then enforcement may be necessary. The Clayton Anti-Trust Act restricts the use of exclusive sales contracts “tying” a supplier to another commercial interest to allow for a competitive marketplace with pricing determined by the market and not through exclusive dealings. Third line forcing, which is a supplier compelling the consumer to purchase goods from a third party and refusing to supply the product if that condition is not agreed to, is also prohibited. It is anti-competitive to tie the goods of one supplier to another and compel the consumer to abide by that agreement. An example would be a computer manufacturer refusing to let a consumer buy the product without also purchasing a third party desk to place the computer on. This arrangement can also be used to fix the price of products by exploiting an advantage that one product has on the market. Corporate structure Section 8 of the Clayton Anti-Trust Act prohibits an individual from serving as the director of more than one corporation, also a key indicator of an unfair market advantage or corporate loophole. In regards to unions The Clayton Anti-Trust Act does not cover unions as these organizations represent the labor of workers, which is neither a “commodity nor article of commerce.” Actions by the union are not considered anti-competitive and they may engage in activities against the employer, such as striking. This contrasts to the preceding Sherman Anti-trust Act that was sometimes used as part of “union busting” due to the dubious classification of unions as “cartels of human labor.” Therefore, injunctions could no longer be used to end most labor actions. Enforcement of the Clayton Anti-Trust Act The Anti-Trust Division of the US Department of Justice works with the Federal Trade Commission to regulate and if necessary, file suit against violators of anti-trust laws. For example, the Department of Justice may bring suit against several service providers that are colluding on prices offered to consumers. This constitutes a cartel of sorts and is an anti-competitive environment that harms consumers. Although collusion may resolve itself rise the rise of new firms or one commercial interest cheating the others, the government regulators can also get involved and break up the cartel. Criticism Some have criticized government regulations such as the Sherman Anti-trust Act and the Clayton Anti-Trust Act as stifling innovation and creating undue inefficiency in the free market. These critics argue that larger commercial entities have the ability and incentive to continue innovation to maintain their market share and that supporting smaller, less capable enterprises in the name of competitiveness is inherently anti-competitive. These proponents also strongly believe in the self-correcting nature of markets and the eventuality that inefficient collusive enterprises that work contrary to consumers will ultimately fail. This legislation is also accused of destroying “economies of scale” by preventing business expansion that in turn prevents cost lowering mechanisms such as bulk buying, long term contracts and specialization. Larger commercial enterprises also get better interest rates from banks for long term borrowing. Increasing economies of scale create natural monopolies that usually benefit the consumer as the ever expanding commercial interest gets increasing capable of providing lower cost goods and widespread commercial success from expanding in new markets.