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What is Section 1 of the Sherman Antitrust Act

The Sherman Antitrust Act, one of the first major business regulatory attempts after the Civil War, is broken down into two main parts: Section 1 and Section 2. Within Section 2, the main topics covered are the use of monopolies, whether intended or unintended, and either by an individual company or companies, to restrain interstate commerce.
Section 1, however, puts a greater emphasis on the actual nature of constraining interstate commerce. Within this vacuum many different forms of constraint come into play with different legal interpretations as well.
Violations of the Sherman Act under the provisions of Section 1 are considered ‘per se’ violations. These are blatantly obvious attempts by a company or individual to constrain the free market. While some cases do, in fact, fall under the per se logic of judicial reasoning, the second form of judicial restraint comes under the ‘rule of reason’.
To a degree, any business deal between two or more parties will constrain interstate commerce in some fashion. Because of this the rule of reason needs to be applied in order to differentiate between fair and unfair business practices. This brings into play the first section of the Act to the different types of restraint present within the market.
The first type of restraint addressed happens through a form of horizontal integration. This is the practice of two rival companies within the same sector colluding to gain a greater market share and squeeze out smaller competitors. Differing from vertical integration, horizontal integration will expose two or more companies to legal recourse.
Horizontal agreements between firms either manifest usually through attempts at price-fixing, which inhibits the free market’s ability to determine the fair price of a good in turn benefiting the company, or sector alignment, where companies agree to sell either within a certain state or certain area of their product’s consumers.
The second form sometimes is less obvious as a consumer in one state is free to purchase a good from any other state, but when companies agree to stay in their own regional zones this makes the choices less obvious to the consumers allowing the producers a greater control over prices within their sphere of influence.
Vertical integration, which occurred most notably at the turn of the 20th century, addressed constraints caused by producers colluding at different levels of the manufacturing process. For example, an oil producer makes exclusive agreements with one shipper. The shipper makes exclusive agreements with one extractor, thereby lowering the costs for the entire process. This vertically integrates the oil market and would give an advantage to each company along the manufacturing line. Instead of affecting the sector as a whole, it limits competition at each individual level, constraining free trade, making this practice illegal.
The first section of the Sherman Act brings into focus clearly business deals that would constrain interstate commerce. Businesses have a variety of ways to end up constraining the market. They can accomplish this goal either horizontally or vertically, and in some cases they can even exclude certain regional areas allowing them to focus on a specific area driving up prices. All of these practices are illegal under the Sherman Act and are punished as felonies.

Background of the Sherman Antitrust Act You Must Know

After the Civil War had ended and reconstruction began, the Federal Government of the United States began to realize simply that business practices, both large and small, may be threatened by a lack of regulation. The first attempt to curtail the effects of a purely unregulated market occurred in 1887 with the passage of the Interstate Commerce Act, which regulated trade between states.
Three years later Senator John Sherman, the brother of the famous Civil War general of the North, was able to pass what would become known as the Sherman Antitrust Act, in an effort to increase competition within United States industry.
Senator Sherman, who was considered a financial authority of his day, had already begun to recognize the diminishing capacity with the US industry sector to sustain fair competitive trade. More and more companies were seeking to vertically integrate within their business models, either through colluding with fellow industry leaders or making an attempt to control their industry sector as a whole from top to bottom. These actions ran against what is the American form of capitalistic free trade.
The free market is defined by many sellers and buyers able to enter into the market. Such competitiveness would thereby ensure a lower price for a good to a buyer. Sherman recognized that by the forming of monopolies within certain sectors, whether by an individual or by companies working in unison, companies could control the price of their goods, and thus, limit the options for an everyday consumer.
With technology advancing at a rapid rate there was both many more goods consumers could purchase and many more sectors that could be manipulated. While laws governing these actions were present, they were not always consistent from state to state nor were they commonly known. The public and their elected legislators did begin to recognize this threat to the American system of free market trade. The passage of the Sherman Antitrust Act sought to correct this market imbalance through government regulation and judicial enforcement ensuring a level of protection to the consumer.  
Within the first to sections of the Sherman Antitrust Act, passed in 1890, the government would eliminate the largest threats to the free market. The first section, Section 1, would go onto explain the how relationships through contracts, both oral and written, could threaten the free market and would therefore be deemed illegal. Section 2 goes onto outline that not all market control just happens between two or more business entities, but a person or company can seek to control a market on a whole creating a monopoly, which is also illegal.
The Sherman Antitrust Act would lay the legal foundation of what it would take to break up monopolies within the United States. Unlike the Interstate Commerce Law, the Sherman Act also included threats to US business practices by individuals outside American borders. Foreign interests could also disrupt fair business practices and had to be taken into account when forming the law. While his brother was the famous Civil War general, Senator John Sherman was a financial general within the United States Senate creating and passing one of the central business laws which is still readily referenced and applied today.

What is Section 2 of the Sherman Antitrust Act

The Sherman Antitrust Act is broken into two main legislative sections, each with the intended goal to control the restraint found in business practices concerning interstate commerce or foreign trade and commerce. In Section 1, companies are outlined as the chief offenders by their practices of trying to restrain interstate trade through negotiations, oral or written, or to conspire in general between rival competitors to achieve a level of market control. Section 2 outlines individuals that seek to monopolize the market for their own benefit. This may also extend to a group of individuals as well.
A monopoly is an economic term used to define complete and utter control within a sector of the economy. The market share is dominated by one person or a set of people that benefit the most, and is inherently devoid of competition. Since the Sherman Antitrust Act aims to promote competition, monopolies are therefore illegal in many ways.
However, for a monopoly to be considered to breach antitrust laws found within the Sherman Act a set of criteria need to be met. First, the individual must be in control of a monopoly and not a perceived monopoly. While a company’s product may appear frequently in the media and every store shelf, that does not necessarily confer the status of a monopoly. The individual or individuals need to be in control of a sole products or products within their business sector.
The next stepping stone to breaking the antitrust laws found within Section 2 of the Sherman Act directly concerns intent. If it is the intent of an individual to gain monopolistic control and then unleash the forces of their monopolistic control on the market, erasing many levels of competition within their business sector, then this would be considered a breach of the Sherman Act.
Yet, some individuals are fortunate enough to come in control of a monopoly by happenstance. A monopoly can develop from the sale of a superior product with respect to the company’s competitors. If this is the case the individual never had a monopolistic intent, but rather an intent to simply create a superior product, and this would not necessarily violate the Sherman Act.
Sometimes there are historical factors at play as well. Ford Motor Company at the turn of the 20th century had a monopoly on the automobile market. Although this was not the original design, Henry Ford developed new technology by creating the assembly line allowing him to mass produce the automobile, in turn giving him a monopoly. However, he never sought to directly squash competitors that would later use his ingenious design leading the way for competition to return in the market. Historical factors combined with technology were at play in this example, and therefore, did not violate the second section of the Sherman Act.
As with many aspects within the field of law, intent is very important. Intent with regards to the second section of the Sherman Antitrust Act is especially important since it has to be there for an activity to be deemed illegal. If not present, the monopolistic nature of a company needs to be examined in much greater depth, and at times, may not be viewed in breach of the Sherman Act.

Quick Facts About Anti-Trust Laws

Anti-trust laws are in place to encourage competition in the market place and to prevent an abuse of power when only one company offers services. For example, any company which has a monopoly in one area may charge consumers higher prices, as there is no competition. Anti-trust laws prevent monopolies from being formed, which encourages businesses to offer quality services at reduced rates in order to compete with one another. 
Anti-trust laws help to protect consumers. When businesses must compete, they tend to offer better products and services to consumers. In addition, consumers are often offered reduced rates when a business has competition in the area.
Anti-trust laws also control pricing in cases where there are monopolies. Although sometimes monopolies are found to exist, the Government does not allow those companies to charge excessive prices, especially when it is a necessary service such as propane.  

Learn About Anti-Trust Law Regarding Monopolies

The United States Federal Government has established a variety of anti-trust laws in order to prohibit unfair business practices and behavior that limits competition. Through anti-trust legislation, the U.S. Government encourages business competition. It is widely believed that competition is necessary to maintain a stable and functioning economy. Therefore, anti-trust laws prohibit the formation of monopolies.
A monopoly is a situation in which one corporation has complete control over a certain economic sector. For instance, under anti-trust policy Microsoft was deemed a monopoly because it was the only corporation that supplied the public with computer operating systems. As a result, the Federal Government took action to dissolve the monopoly.
Anti-trust legislation plays an important role in protecting consumers in the United States, as it helps to prevent unreasonable inflation. Business competition requires companies to provide consumers with reasonably prices items. In addition, it encourages technological advancement and product improvement. 

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