Federal Efforts To Control Monopoly

One of the first economic abuses that the government attempted to correct in the public interest was the excessive concentration of business. At the end of the 19th and beginning of the 20th centuries, the United States went through a period of rapid economic concentration characterized by the merger of small companies into bigger ones. Many big companies entered into agreements to limit supply and raise prices; often they drove weaker firms from business by cutting prices and taking losses until competitors went bankrupt. Then the surviving companies could take over the assets of their former competitors and raise prices.

Growing numbers of Americans were alarmed by increased concentration and called for action. The government responded in 1890 with the Sherman Antitrust Act, which made it illegal for any person or business to monopolize trade, or to contract, combine or conspire to restrict trade. In the early 1900s, the government used the act to break up the Standard Oil Company and several other large firms that had abused their economic power. But the courts set guidelines for applying the act that restricted illegality to the "unreasonable" restraint of trade. A company might own or control a majority of the output in a certain industry, but if the court considered its behavior reasonable, it was not necessary to break up the company. Many companies continued to grow by merging with or buying competing firms.

In 1914 Congress responded to continuing economic concentration by passing two laws designed to bolster the Sherman Antitrust Act: the Clayton Antitrust Act and the Federal Trade Commission Act. The Clayton Antitrust Act tried to define more clearly what was meant by restraint of trade. It outlaws price discrimination that gives certain buyers an advantage over others; forbids agreements in which manufacturers sell only to dealers who agree not to sell a rival manufacturer's products; and prohibits some types of mergers and other acts that could lessen competition. The Federal Trade Commission Act established a government commission aimed at preventing unfair and anticompetitive business practices.

In 1912 the United States Steel Corporation, which controlled more than half of all the steel production in the United States, was accused of monopoly for operating as a price leader in the steel industry. But the lawsuit brought against the corporation was not settled until 1920. In a landmark decision, the Supreme Court ruled that U.S. Steel was not a monopoly because there was no "unreasonable" restraint of trade. A careful distinction was drawn between bigness and monopoly.

Since World War II, the government has been active in its antitrust prosecutions. Four important examples give evidence of the scope of these efforts: