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5-24 Law, Business & Government [CH 5

industries are found in industries of public interest such as public utilities, gas and electric
companies. In these industries, competition is restricted or eliminated because it is deemed
wasteful or excessive. For example, only one electrical power company or one natural gas
company is permitted to serve a specific geographical area or market.
Statutes affecting competition and various commercial practices exist at both the state
and federal levels. The first effort by the federal government to regulate competition was
the Sherman Antitrust Act. Recently the justice department launched an investigation of
pricing in the cereal industry because prices are, according to the justice department, way

too high and controlled by only four companies that dominate the industry and excellent
profits. (Apparently making an excellent profit is suspect for scrutiny.)
Sherman Antitrust Act
Two or more business Sherman Antitrust Act
firms could not agree to fix The Sherman Antitrust Act (1890) declared that two or more business firms could
the prices to be charged for not agree to the prices to be charged for goods (price fixing). It also prohibited companies
goods (price fixing). It also from dividing markets among themselves or to collude in deciding not to do business with
prohibited companies from
dividing markets among a particular company.
themselves or to collude in It took more than a decade to implement the Sherman Antitrust Act. But, in the early
deciding not to do business 1900s, with Teddy Roosevelt (R) in the White House, the act was used to break up J. P.
with a particular company. Mor-gan's railroad monopoly, John D. Rockefeller's Standard Oil, and Buck Duke's
tobacco trust. Specifically excluded business activity from Sherman Antitrust litigation
are agricultural cooperatives. An agricultural cooperative, also known as a farmers' co-

op, is a cooperative where farmers pool their resources in certain areas of activity. ...
There are two primary types of agricultural service cooperatives; 'supply cooperative'
and 'marketing cooperative'. Probably the largest marketing cooperative is Sunkist.
Every few years there is someone who thinks that Sunkist has been engaging in
monopolistic marketing activities. Lawyers are hired to take Sunkist to court under

the Sherman Antitrust Act, only to have the case thrown out of court because the
language in the Act specifically mentions and protects agricultural cooperatives from
this type of litigation.
Major merger and acquisition activity in the United States is generally scrutinized by
Clayton Act An act that the Justice Department for compliance with the antitrust act. In 2001, Compaq and
regulates general practices
that potentially may be Hewlett-Packard announced their intention to merge. Prior to that transaction occurring, it
detrimental to fair had to be reviewed for antitrust compliance. The HP-Compaq merger eventually was
competition. Some of these approved, and the firms went ahead with the deal. Coming out of bankruptcy, Sears and
general practices regulated Kmart merged under Sears Holding.
by the Clayton Act are
price discrimination; Clayton Act
exclusive dealing contracts,
tying agreements, or Congress determined that the Sherman Antitrust Act was insufficient and therefore
requirement contracts; enacted the Clayton Act in 1914. Specifically, the Clayton Act outlawed the following
mergers and acquisitions; four practices which reduce competition:
and interlocking
directorates.  Price discrimination—charging one firm (usually a large one) a lower price for
goods than other (usually smaller) firms are charged. (Section 2)
Federal Trade  Tying agreements—requiring a buyer to purchase unwanted products for the
Commission Act right to purchase desired products (i.e. bundling software). (Section 3)
An act that established the
Federal Trade Commission  Binding contracts—requiring a buyer to purchase products from a specific
(FTC), a five-member supplier and excluding them from dealing with other sellers. (Section 3)
committee empowered to  Interlocking directorate—competitive companies have same board members
investigate illegal trade sitting on each other’s boards of directors. Acquiring of stock in another
practices. company is forbidden if that acquisition lessens competition. (Section 8)

Wheeler-Lea Amendment
An amendment that Federal Trade Commission Act
expanded the FTC's power The Federal Trade Commission Act (1914) established the Federal Trade
to eliminate deceptive Commission (FTC), a five‑member committee directed to investigate illegal trade
business practices, practices. This act prohibits all unfair methods of competition. The Wheeler‑Lea
including those affecting Amendment (1938) expanded the FTC's power to eliminate deceptive business practices,
consumers as well as
competitors. including those affecting consumers as well as competitors.
The FTC acts independently to investigate a firm's business practices or on complaints
made by other firms or individuals. Recent targets have included fly‑by‑night
telemarketers who use television to help sell fraudulent products and advertisers who
make unsubstantiated claims.
.
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