IV.

Enforcement of Antitrust Laws

The basic purpose of the antitrust laws is to create and maintain conditions of competition in industry and commerce. The effectiveness of these laws depends essentially on the way in which the laws are interpreted by the federal judiciary, and the vigor with which an administration in power seeks their enforcement. The initiative for enforcement comes from the U.S. Department of Justice, headed by the attorney general, a cabinet-level official. Ultimately, therefore, the president is responsible for determining if antitrust enforcement will be vigorous or lax. Since 1890 attitudes of both the courts and presidents toward the antitrust laws have fluctuated widely.

The first major court decision involving a trust came two decades after the passage of the Sherman Act. In 1911, in a landmark case, the U.S. Supreme Court found that unlawful monopoly power existed in both the Standard Oil Company and the American Tobacco Company; these companies were then ordered dissolved into smaller, competing firms. Prior to this case, the courts had allowed manufacturing trusts to continue on the grounds that Congress intended the Sherman Act to apply only to interstate commerce. In its decision the Court established the “rule of reason” principle with respect to industrial combinations. Congress, according to the Court, only intended that “unreasonable” combinations in restraint of trade be illegal under the Sherman Act. This doctrine gave the Antitrust Division of the Justice Department and the courts both flexibility and discretion in passing on business practices that might violate antitrust statutes.

Since 1911 the courts have not been consistent in their interpretation of the meaning of monopoly power under the Sherman Act. In the early 1920s, for example, in a case involving the United States Steel Corporation, the Supreme Court held that the mere existence of monopoly power, if not abused, did not constitute a violation of the Sherman Act. Later, however, in the Aluminum Company of America (ALCOA) case (1945), the Court reversed its position; it ruled that ALCOA was a monopoly, but it did not order the company dissolved. Pure monopoly, apart from public utilities, is rare in the American economy, and more recent cases under the Sherman Act have involved either oligopolies (industries operated by a very few firms) or mergers of conglomerates. Since the Supreme Court has not developed a legal philosophy capable of coping with the immense economic power inherent in many situations, the Court continues to wrestle with problems that are posed by the existence of giant corporations.

Attitudes of government officials charged with enforcing antitrust laws have also changed over the years. President Theodore Roosevelt gained political fame as a “trustbuster” through vigorous enforcement of the Sherman Act. In the 1920s antitrust activity languished, but it was revived again during President Franklin D. Roosevelt's administrations. In 1938 Roosevelt launched a far-reaching investigation into monopoly in the economy; more than 80 antitrust suits were filed in 1940 as a result of this investigation. Activities in this area were slowed during World War II.

None of the postwar administrations was inclined toward vigorous antitrust enforcement, although suits were filed against such well-known corporations as International Business Machines, General Mills, and General Foods. No new, clear-cut principles of antitrust law emerged from any of these cases, some of which were settled out of court or won by the defendants. A suit against American Telephone and Telegraph, however, led to its Court-ordered reorganization in 1984. Seven independent regional companies were created to handle local telephone service. AT&T continues as a competitor with other companies for long-distance business.

Recently ambivalence has grown among lawyers, economists, and business executives with respect to the effectiveness of the nation's antitrust laws. Some of this stems from the belief that the growth of multinational firms and worldwide competition makes concern about concentration in the domestic market less important. Other experts suggest that a vigilant antitrust stance is essential if price fixing and horizontal-type mergers that reduce competition in certain industries are to be prevented.