The Clayton Antitrust Act (1914) specified and forbade activities that reduced COMPETITION. The act expanded on antitrust policy efforts initiated by the SHERMAN ANTITRUST ACT (1890), which was considered by many to be not specific enough and open to considerable judicial interpretation. Congress passed the Clayton Act to attack practices used by monopolists to acquire MONOPOLY power. Along with the Federal Trade Commission Act passed in the same year, the Clayton Act prohibited four kinds of activities that would tend to lessen competition:
• PRICE DISCRIMINATION
• exclusive dealing and tying arrangements
• Certain types of MERGERS AND ACQUISITIONS
• Interlocking company BOARD OF DIRECTORS
Section 2 of the act prohibited local and territorial price discrimination by sellers. This was a practice often used by monopolists to bankrupt small competitors. A large company would sell its products at or below cost in markets where local competitors existed and at higher prices in markets where no local competitors existed. Small competitors were often driven out of business, allowing the monopolist to raise prices in markets where local competitors no longer existed. The ROBINSON-PATMAN ACT (1936) expanded and clarified anticompetitive PRICING STRATEGIES. Tying agreements occur when a seller refuses to sell products to a buyer unless the buyer also agrees to purchase other products from the seller. If a firm has a monopoly on a critical product or component, it could use its monopoly power to pressure buyers into purchasing other products, for which the company does not have a monopoly, from them. Tying agreements reduce competition, and can be challenged under Section 3 of the Clayton Act, or under the Sherman Act. Exclusive dealing agreements require buyers of a particular service or product to purchase the product or service only from one seller. Like tying agreements, this reduces competition. Section 7 of the Clayton Act bars mergers and acquisitions that may have an anticompetitive effect. To evaluate the impact of a merger or acquisition requires defining the market that would be affected. While this might seem simple, defining the relevant market or line of commerce is not always easy. Especially as technological advances allow markets to converge, defining who and how many competitors exist in a market is becoming increasingly difficult. For example, in the early 1990s the long-distance telecommunications market included three major firms— AT&T;, Sprint, and MCI. A merger of any of these firms would have significantly increased MARKET CONCENTRATION. However, microwave, satellite, and fiber-optic cable company technologies are redefining telecommunications, thereby redefining competition in the industry. Section 8 of the Clayton Act was designed to reduce the potential for price fixing or division of markets through coordination by INTERLOCKING DIRECTORATEs. Section 8 prohibited any person from serving as a director of two or more corporations that were or had been competitors. The Antitrust Amendments Act of 1990 expanded the limitations on interlocking directorates by prohibiting individuals from serving as officers and/or directors of competing corporations.
See also ANTITRUST LAW.