1. What is antitrust law?
To understand what "antitrust" law
is, it helps to start with what is meant by a "trust." In the late 1800s, the
famous businessman John D. Rockefeller put a number of far-reaching companies he
owned under the control of the same group of "trustees" to organize the
disparate businesses and gain more centralized control. Many large companies
adopted this "trust" system in the late 19th and early 20th
centuries, and the term "trust" came to be used to refer to these large
companies or groups of companies. Among the various advantages of this type of
business organization, the companies often controlled the market for a
particular product all the way from manufacturing to distribution and ultimate
purchase by the consumer. This market dominance allowed these companies to drive
competitors out of business and raise prices for consumers when there was no one
left to compete with them. There were famous trusts in the oil, steel, and
tobacco industries, to name a few.
Designed to alleviate the economic
hardships imposed on consumers when these trusts misused their market power,
"antitrust" laws were created to prevent business practices used to decrease
competition in the economic marketplace. By preserving competition, antitrust
law is designed to help consumers by encouraging companies to compete for our
business with better products and lower prices. Today, state and federal laws
continue to help ensure a competitive economy and prevent unfair trade
practices.
2. What are some common violations
of antitrust law?
Common violations include Bid
Rigging, Price-Fixing, Monopolization, and Resale Price Maintenance.
Bid Rigging:
Bid Rigging occurs when
competitors enter into an agreement that will result in a pre-determined
winner when bidding for a contract is taking place. Competitors may agree to
bid at a certain price so that the other competitor will win, or a contract
may be tailored so that a certain company is pre-determined to win a future
bid. Both activities are illegal.
Price-Fixing:
Price-fixing is one of the most
common ways people and businesses violate antitrust laws. Price-fixing
occurs when competitors agree on how much they will charge for a product or
service. Just because many competitors seem to be charging the same price
for a product or service does not necessarily mean they are illegally fixing
prices. Prices are often based on market conditions, and even though a
competitor may raise or lower a price based on what someone else is
charging, that does not mean the two competitors agreed to charge a
certain price. This happens a lot among competing gasoline stations, for
example, as the stations may raise or lower their price because they saw the
station across the street do the same. Unless the two stations entered into
an agreement to charge the same price for gasoline, this practice is not
illegal.
Monopolization:
A "monopoly" is a large company
that has control over most, if not all, of a product or service in a
particular industry or geographical area. "Monopolization" is the process by
which a monopoly is created or maintained. With this power the competitor
may completely control a market price and exclude any competitors, which
usually results in an increase in price to consumers. It is not necessarily
illegal to be monopoly -- sometimes, monopolies are economically efficient
and do not harm consumers. It is also not necessarily illegal to become a
monopoly -- a company can build a unique product that dominates a market just
because it is a better product, and not because the company took any illegal
steps to become a monopoly. However, companies sometimes take steps to
obtain or maintain a monopoly that are illegal.
Resale Price Maintenance:
Resale Price Maintenance is a
term used to describe an arrangement in which a manufacturer may require a
store to sell their product at a specific price. If the store sells the
product at a price below that required by the manufacturer, the manufacturer
may decide that store will not be allowed to sell their product anymore.
Arrangements like this used to be illegal per se -- that is, if a
manufacturer put such a restriction on a store, it was automatically
illegal. However, recent decisions from the U.S. Supreme Court indicate that
these types of arrangements should be examined on a case by case basis, to
determine if the arrangement will harm consumers.
3. There seems to be a lot of
mergers in the news lately. How can such big companies merge to get even bigger?
Even though it seems like mergers
just allow big companies to get bigger and charge consumers more, mergers can
often be good for consumers and the economy. This is because the merged company
often becomes more efficient, which allows the merged company to offer services
to consumers at a lower price than if the two companies remain separate. In
addition, sometimes companies have a hard time operating independently, but if
two companies merge, the bigger company may become stronger.
Other times, mergers can make
markets less competitive, and this harms consumers by reducing choice and
increasing prices. When a merger is announced, federal and state authorities
"review" the merger very carefully to make sure competition is not reduced. For
example, federal and state authorities may look at how much of a market the
merged company will control, and if the merged company will result in less
competition nationally, within a specific state, or even within a specific city.
If federal or state authorities think a merger may reduce competition and harm
consumers, they may ask the merged company to sell parts of the company to a
competitor (just to keep the market competitive). Sometimes, federal or state
authorities can sue to stop or reverse a merger.
4. What does the Michigan Attorney
General do in this area?
The Attorney General's role is to
protect the citizens of the State of Michigan by enforcing state and federal
antitrust laws. The Attorney General investigates possible violations, fights
unlawful business practices, and encourages compliance with consumer protection
and antitrust laws. The Attorney General often works with Attorneys General of
other states and with the federal government to investigate and prosecute
violations of state and federal antitrust laws. Sometimes, the Attorney General
also works with other states and the federal government to make sure that
mergers will not reduce competition and harm Michigan consumers (please see the
answer to Question #3, above).
5. What does the federal government
do in this area?
Federal government officials enforce
federal antitrust laws. The U.S. Department of Justice and the Federal Trade
Commission both conduct investigations and bring enforcement actions if they
think there may be a violation of federal antitrust law. Both organizations
review mergers to make sure they are not anti-competitive, investigate possible
antitrust violations, and bring civil actions against companies or individuals
that violate antitrust laws. The Department of Justice also brings criminal
cases against individuals or companies for "serious and willful" violations of
antitrust laws.
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