What Is the Sherman Antitrust Act
Sherman Antitrust Act, introduced in 1890, after the name of the senator John Sherman, was aimed at phasing out unhealthy competition practices, which resulted into increase in cost to the consumer. It is popularly known as competition act. It advocated monopolies achieved solely on merit. This act forbade coercive monopolies and gave fair chance to other players to be in competition with the market leader. Coercive monopoly resulting into formation of rigid cartels is an offence under section 2 of this Act.
Sherman Antitrust Act, also known as Sherman act, rendered formation of Trust as illegal, since it restrained the inter-state commerce. Trust is an entity formed by a group of companies dealing in common trade. Stockholders in several companies pledge their stocks to a group of trustees and got the entitlement to specified share in consolidated earnings of jointly managed companies.
In the absence of this act, trusts were controlling the market trends and prices were set to gain maximum profit. Standard Oil Trust formed in 1882 was formed in order to reap maximum profits by giving full control of Oil market to trust and its component companies. This caused major downfall of various oil companies who could not withstand the monopolistic policies of trade followed by this Trust.
Section 2 of this act hence came as rescue of those companies who suffered losses and claimed triple damages in Federal court in the canopy of this act. Sherman Act, however, could not identify difference between monopoly arising due to cost controls of a company and forced monopoly.
Due to loose definition of market, competition and conspiracy, Sherman Act had very short life period and was dismantled in just 5 years. In 1895, a US sugar refining company defended its case by showing the fair practices followed by it without controlling the trade. Thus, fair practice followed by this company won it the suit though it controlled about 96% of US sugar market at that time.
Sherman Act fails to identify healthy competition. Some definitions included in the Act need to be revised and established more powerfully. Due to its strong stand against Trusts, it is popularized as ‘trust- busting’ act. Price of commodities being a deciding factor of the fate of political parties contending elections, this act was mostly used during election campaigns to fulfill the promises of controlling inflation in American History.
Sherman Act however continued to be used to dissolve companies following unfair practices on the onset of 20th century. Standard Oil Company and American Tobacco were few names which were dissolved using Sherman Act. Even after 100 years of conception, Sherman act is used as a tool to control unexplained inflated price and unhealthy competition. Microsoft, the software giant, was booked under this act recently.