Introduction to Contracts, Sales, Product Liability, and Bankruptcy

Many measures have been taken to try to keep the marketplace free from influences that would restrict competition. These efforts include antitrust regulation, laws that prevent companies from entering into agreements to control trade through a monopoly. The first act regulating competition was the Sherman Antitrust Act, passed in 1890 to prevent large companies from dominating an industry and making it hard for smaller firms to compete. This broad act banned monopolies and contracts, mergers, or conspiracies in restraint of trade. In 1914 the Clayton Act added to the more general provisions of the Sherman Antitrust Act. It outlawed the following:

• Price discrimination. Offering a customer discounts that are not offered to all other purchasers buying on similar terms
• Exclusive dealing. Refusing to let the buyer purchase a competitor's products for resale
• Tying contracts. Requiring buyers to purchase merchandise they may not want in order to get the products they do want
• Purchase of stock in competing corporations so as to lessen competition. Buying competitors' stock in such quantity that competition is reduced

The 1950 Celler-Kefauver Act amended the Clayton Act. It bans the purchase of one firm by another if the resulting merger decreases competition within the industry. As a result, all corporate acquisitions are subject to regulatory approval before they can be finalized. Most antitrust actions are taken by the U.S. Department of Justice, based on federal law. Violations of the antitrust acts are punishable by fines, imprisonment, or civil damage payments that can be as high as three times the actual damage amount. These outcomes give defendants an incentive to resolve cases.

The Federal Trade Commission Act, also passed in 1914, bans unfair trade practices. This act created the Federal Trade Commission (FTC), an independent five-member board with the power to define and monitor unfair trade practices, such as those prohibited by the Sherman and Clayton Acts. The FTC investigates complaints and can issue rulings called cease-and-desist orders to force companies to stop unfair business practices. Its powers have grown over the years. Today the FTC is one of the most important agencies regulating the competitive practices of business.