The Antitrust Laws of the United States of America: A Study of Competition Enforced by Law

By A. D. Neale | Go to book overview

PART I
THE CONTENT AND ADMINISTRATION OF ANTITRUST

CHAPTER I
AGREEMENTS BETWEEN COMPETITORS. I. PRICE-FIXING

1. Section 1 of the Sherman Act and restrictive trade-agreements

Danger lies in restraint of trade because the result of suppressing or limiting competition may be to build up a position of power in a market. People in a position of power in a market can make the terms of bargains more favourable to themselves and less favourable to others than they would otherwise be. There are two obvious ways of achieving market power. One way is for the sellers (or buyers) to band together and exert their joint power by agreement instead of competing one against the other. The other way is for a single firm to achieve off its own bat a dominant position in the market, in other words to monopolize it.1 Section 1 of the Sherman Act deals with restraint of trade arising from agreement or combination; section 2 deals with monopolization. This description of antitrust case-law begins with the law under section 1 concerning agreements between competitors.

There are also two main ways of exerting power in a market. The first is to use it to influence prices directly; in the case of sellers, to raise prices above the level that would otherwise be reached or, as it may sometimes be regarded, to prevent their falling below a level that those concerned think fair. The second is to use it to exclude competitors from the market, thus consolidating or extending the original degree of market power. Power over prices and power to exclude competitors have always been regarded as the earmarks of monopoly and restraint of trade. The use of market power to exclude competitors is in a sense secondary, since its aim is to consolidate a strategic position; ultimately the object of market strategy is to gain some control over price. (Control does not necessarily mean exploitation, of course, for

____________________
1
Monopoly means dominance by a seller. Dominance by a buyer is technically called 'monopsony': but in antitrust the words 'monopoly' and 'monopolization' are taken to cover dominance on either side of the market.

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