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Simple English definitions for legal terms

antitrust laws

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A quick definition of antitrust laws:

Antitrust laws are rules that prevent companies from unfairly controlling a market or limiting competition. There are three main laws: the Sherman Act Section 1, the Sherman Act Section 2, and the Clayton Act. Violations can be either a per se violation, which means it's automatically illegal, or a violation of the rule of reason, which requires further analysis. Examples of illegal practices include price fixing, bid-rigging, and monopolizing a market. Mergers between companies are also subject to review to ensure they don't harm competition.

A more thorough explanation:

Antitrust laws are federal statutes that aim to promote competition and prevent monopolies in the marketplace. The three key federal statutes in Antitrust Law are Sherman Act Section 1, Sherman Act Section 2, and the Clayton Act.

Violations under the Sherman Act take one of two forms -- either as a per se violation or as a violation of the rule of reason. Per se violations of the Sherman Act include price fixing, bid-rigging, horizontal customer allocation, and territorial allocation agreements. A per se violation requires no further inquiry into the practice's actual effect on the market or the intentions of those individuals who engaged in the practice. All other violations will be analyzed under the Rule of Reason.

For example, if two companies agree to fix prices for a certain product, this is a per se violation of the Sherman Act. However, if two companies enter into an agreement that has both pro-competitive and anti-competitive elements, the court will apply the "totality of the circumstances test" and ask whether the challenged practice promotes or suppresses market competition in net.

Horizontal agreements refer to agreements between competitors. Vertical agreements refer to agreements between manufacturers and distributors. Under Sherman Act Section 1, any agreements that unreasonably restrains competition is unlawful. All vertical agreements are analyzed under the Rule of Reason.

For example, if two competing companies agree to boycott another competitor, this is illegal per se under the Sherman Act. However, if two companies enter into a vertical agreement that requires a retailer or distributor to purchase exclusively from the manufacturer, this is subject only to the rule of reason.

The Clayton Act bars mergers when the effect “may be substantially to lessen competition or to tend to create a monopoly.” Horizontal mergers (mergers among two competitors); vertical mergers (merger among firms that have a buyer-seller relationship) and potential competition mergers (buyer is likely to enter the market and become a potential competitor of the seller) are subject to review by FTC and DOJ.

For example, if two competing companies merge and the effect is to substantially lessen competition in the marketplace, this would violate the Clayton Act.

Antitrust laws are designed to promote competition and prevent monopolies in the marketplace. Violations of these laws can result in significant penalties and legal consequences. It is important for businesses to understand and comply with these laws to avoid potential legal issues.

antitrust | antitrust violations

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