Antitrust Law: An Introduction
Updated July 25, 2024
Antitrust Law: An Introduction
Recent years have witnessed a resurgence of both popular
and political interest in antitrust. This renewed attention has
While the consumer-welfare standard thus plays a central
produced a flurry of legislative activity, with several
role in contemporary U.S. antitrust, some have suggested
Members of Congress introducing proposals to reform
that it is both descriptively and normatively incomplete.
various elements of competition law. This In Focus
One point of contention involves anticompetitive conduct
provides an overview of antitrust doctrine and selected
by buyers, which most directly harms sellers rather than end
antitrust legislation pending before Congress.
consumers. Whether—and how—such harms are relevant
under the consumer-welfare standard is a complicated
The Goals of Antitrust
question. In some cases, reductions in buy-side competition
The antitrust laws are designed to protect economic
do harm consumers. For example, a merger that gives a
competition. At that level of generality, there is little
firm the ability to depress input prices by purchasing less
controversy. However, there is profound disagreement
may harm consumers by leading to lower output. In other
about antitrust’s more specific goals. Safeguarding
buy-side cases, however, injuries may be limited to sellers.
“competition” can mean a variety of things, and disputes
For example, a merger might increase a firm’s bargaining
about the appropriate targets of antitrust policy have
leverage with suppliers without giving it incentives to
persisted since its inception.
purchase fewer inputs. In that case, the main effect of
diminished competition may be a wealth transfer from
Economists tend to approach this issue with similar
sellers to the powerful buyer, without any effects on final
discussions of the effects of market power—the ability of a
output. Powerful buyers may even benefit consumers by
firm to profitably charge prices above levels that would
passing along some of their cost savings. Some
prevail in a competitive market. Economic theory identifies
commentators have appealed to these fact patterns to argue
two relevant effects. First, market power can produce
that “trading partner welfare” or safeguarding the
allocative inefficiency: when prices exceed competitive
“competitive process” represent more descriptively accurate
levels, some consumers who would have purchased a
and normatively desirable benchmarks for antitrust policy
product at the competitive price choose to forgo it or
than consumer welfare. The possible tension between these
substitute less desired alternatives. Thus, market power can
goals and the consumer-welfare standard may become
lead to suboptimal allocations of scarce resources. Second,
increasingly salient as antitrust enforcers take a greater
market power can result in wealth transfers: consumers
interest in labor markets, where workers rather than
who buy a product at an uncompetitive price are poorer
consumers are the most direct victims of anticompetitive
than they would be in a competitive market, while the seller
conduct.
is richer.
The above discussion does not exhaust the possible ends
Today, antitrust is principally concerned with preventing
that antitrust can serve. There is a long-standing debate over
anticompetitive conduct that enables firms to exercise
whether antitrust should promote “noneconomic” objectives
market power. However, the distinct effects of market
like personal liberty, protecting small entrepreneurs, or
power highlight a fissure in the debate over antitrust’s more
preserving the integrity of the political process. Although
foundational goals. In a narrow subset of cases, efficiency
there has recently been a resurgence of interest in such
and consumer welfare may pull in opposite directions. For
goals among some antitrust commentators, those
example, some mergers may lower production costs, but
considerations have not played an explicit role in the
also increase market power. Some commentators—
development of antitrust decision rules for several decades.
advocates of a “total welfare” standard—maintain that
antitrust should permit such transactions as long as the
The Key Statutes
gains in productive efficiency outweigh the losses in
The persistence of disputes over antitrust’s goals may be
allocative efficiency and consumer welfare. By contrast,
partially attributable to the sparseness of the key federal
defenders of the “consumer welfare” standard advocate
antitrust statutes. The three core provisions—Sections 1 and
blocking such deals when they are likely to effectuate a
2 of the Sherman Act and Section 7 of the Clayton Act—
wealth transfer from consumers to producers. Although the
are succinct and vague, effectively granting the federal
competition laws of some countries embrace the
courts common law authority to fashion competition policy
total-welfare standard, U.S. antitrust doctrine prioritizes
based on prevailing economic theories.
consumer welfare and does not typically permit producer
gains to offset downstream harms.
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Antitrust Law: An Introduction
Section 1 of the Sherman Act: Restraints of Trade
Section 2 falls into the following categories: exclusionary
Section 1 of the Sherman Act prohibits contracts “in
pricing (e.g., below-cost pricing intended to eliminate
restraint of trade.” Under Section 1 doctrine, a few types of
rivals); refusals to deal (e.g., denial of access to essential
agreements are per se illegal because they almost always
infrastructure or technology); exclusionary distribution
harm competition. The per se category now encompasses
(e.g., tying, bundling, or exclusive dealing); misuse of
horizontal price fixing, horizontal market allocation, and
institutions (e.g., abuse of standard-setting organizations or
some horizontal boycotts. (In antitrust parlance, agreements
enforcement of fraudulent patents); and exclusionary
between competitors are described as “horizontal,” while
product design (i.e., designing products in ways that make
agreements between firms at different points in a
it difficult for rivals to produce substitutes).
distribution chain are described as “vertical.”)
Section 7 of the Clayton Act: Mergers
While a narrow range of conduct remains per se illegal
Section 7 of the Clayton Act prohibits mergers and
under Section 1, most agreements are evaluated under what
acquisitions that threaten “substantially to lessen
is called the Rule of Reason, which requires plaintiffs to
competition, or to tend to create a monopoly.” Today,
establish that a defendant has market power and that a
merger control is largely a bureaucratic affair. The
challenged restraint harms competition. Today, many
Department of Justice and Federal Trade Commission—the
horizontal restraints and all vertical restraints except tying
federal antitrust enforcers—play a central role in merger
arrangements—which are governed by a special test—are
law via the Hart-Scott-Rodino “preclearance” process and
subject to the Rule of Reason. Courts ordinarily employ
the promulgation of merger guidelines. Substantively,
some variation of a three-part burden-shifting framework in
Section 7 doctrine has shifted from a largely structural
Rule-of-Reason cases. Under that framework, plaintiffs
approach that prevailed in the 1950s and 1960s—which
bear the initial burden of proving that a challenged restraint
heavily emphasized market concentration levels and was
has a substantial anticompetitive effect. If the plaintiff
highly skeptical of consolidation—to more flexible
carries that burden, the defendant must then adduce a
inquiries into the details of specific industries and theories
procompetitive rationale for the restraint. If the defendant
of harm. In horizontal mergers, the regulators typically
can do so, then the burden shifts back to the plaintiff to
evaluate two possible harms: coordinated effects (i.e.,
show that the procompetitive efficiencies could be
whether a transaction will facilitate collusion or parallel
reasonably achieved through a less anticompetitive means.
pricing) and unilateral effects (i.e., whether a transaction
will give a firm unilateral pricing power). In vertical
Federal courts have also held that some restraints that are
mergers, by contrast, the agencies assess whether a
not per se illegal can nevertheless be condemned under
transaction will foreclose rivals’ sources of supply or
Section 1 without a full Rule-of-Reason analysis. The
distribution, raise entry barriers, facilitate the exchange of
framework for these “quick look” cases is not definitively
competitively sensitive information, or enable collusion.
settled, but the basic idea is that some types of conduct are
inherently suspect even if they are not per se illegal. As a
Selected Legislation
result, plaintiffs can prevail in such cases without detailed
In recent years, Congress has considered several bills that
market analysis or proof of anticompetitive harm. Courts
would modify various aspects of antitrust and competition
have applied the “quick look” analysis to horizontal
law. In the 118th Congress, S. 4308 would establish more
restraints involving self-regulation of learned professions,
relaxed standards for plaintiffs alleging exclusionary
output restrictions in markets that require some cooperation
conduct under a new section of the Clayton Act. The bill
among competitors, and anticompetitive agreements that
also would make merger law more restrictive by requiring
arguably have noncommercial motivations.
the parties to certain large mergers to bear the burden of
proving that their transactions would not harm competition.
Section 2 of the Sherman Act: Monopolization
While Section 1 of the Sherman Act governs multilateral
Other legislation is more narrowly targeted. S. 3686, for
restraints of trade, Section 2 prohibits unilateral
example, would establish a presumption that certain
anticompetitive conduct by dominant firms—in a word,
conduct involving pricing algorithms constitutes an antitrust
monopolization. Section 2 does not prohibit “bigness”
violation, while S. 2818 would prohibit mergers in the
standing alone. Rather, monopolization is a two-element
meatpacking industry that result in specified levels of
offense: plaintiffs must establish that a firm with monopoly
concentration.
power (a large degree of market power) engaged in
exclusionary conduct.
Some proposals would reach beyond general antitrust law
and impose special competition rules on large technology
Courts and legal academics have struggled to formulate a
platforms. S. 2597 would create a new federal agency
general standard for distinguishing exclusionary conduct
charged with regulating tech platforms across a variety of
from legitimate competition on the merits. Instead of
dimensions, including competition. Other bills would
relying on such a standard, the case law has developed a
establish rules addressing platform self-preferencing (S.
variety of conduct-specific tests, along with a
2033) and interoperability and data portability (S. 2521).
burden-shifting framework that broadly mirrors the
Rule-of-Reason inquiry under Section 1. While a detailed
Jay B. Sykes, Legislative Attorney
review of monopolization law is beyond the scope of this
introduction, much of the conduct challenged under
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Antitrust Law: An Introduction
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