Antitrust Law and Small Businesses
Learn how federal and state antitrust laws work to save consumers millions or even billions of dollars a year in illegal overcharges.
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Our capitalist system works best for everybody when there is free competition (that's the theory anyway). Unfortunately, not all capitalists like free competition and use various methods to stifle it so that they can more easily raise prices on consumers. Some of these methods are illegal. That's where the federal and state antitrust laws come in. When these laws are effectively enforced, they can save consumers millions or even billions of dollars a year in illegal overcharges.
What Business Practices Are Prohibited?
The federal Sherman Act is the nation's main antitrust law. It outlaws all contracts, combinations, and conspiracies that unreasonably restrain interstate and foreign trade. The Sherman Act also makes it a crime to monopolize any part of interstate commerce by suppressing competition with anticompetitive conduct.
Some of the worst antitrust offenses include:
Price fixing: Price fixing occurs when two or more competing sellers agree on what prices to charge, such as by agreeing that they will increase prices a certain amount or that they won’t sell below a certain price.
Bid rigging: Bid rigging most commonly occurs when two or more firms agree to bid in such a way that a designated firm submits the winning bid, typically for local, state, or federal government contracts.
Customer allocation: Customer-allocation agreements involve some arrangement between competitors to split up customers, such as by geographic area, to reduce or eliminate competition.
It has been estimated that such practices can raise the price of a product or service by more than 10%, sometimes much more. The Department of Justice says that people who take consumer and taxpayer money this way are thieves.
How Are Antitrust Laws Enforced?
Both the government and private individuals are involved in enforcing the antitrust laws.
The Antitrust Division of the Department of Justice enforces antitrust laws through both criminal prosecutions and civil lawsuits. The Department of Justice can get tough when it investigates and prosecutes criminal antitrust violations. The FBI may be brought in and the Department may use phone taps and secret informants--just like in The Sopranos television show. Antitrust violations can result in substantial damage awards, fines, and even prison time for those involved. Individual violators can be fined up to $1 million and sentenced to up to 10 years in federal prison for each offense, and corporations can be fined up to $100 million for each offense. For example, a few years ago $850 million in fines was imposed on several vitamin manufacturers who participated in price-fixing and customer-allocation agreements.
The Department of Justice has obtained price-fixing, bid-rigging, or customer-allocation convictions in the soft drink, vitamins, trash hauling, road building, and electrical contracting industries, among others, involving billions of dollars. Moreover, in recent years, grand juries throughout the country have investigated possible violations by businesses involved in selling or supplying fax paper, display materials, explosives, plumbing supplies, doors, aluminum extrusions, carpet, and bread.
The Federal Trade Commission may also file civil lawsuits seeking damages for antitrust violations. Moreover, the FTC may act to prevent mergers by large corporations to prevent monopolies.
Lawsuits for antitrust violations may also be brought by private individuals and companies. To encourage private individuals to bring such suits, federal and most state antitrust laws provide for triple damages. In one recent year, 667 private antitrust suits were filed.
How Can You Know if the Antitrust Laws Are Being Violated?
Price-fixing, bid-rigging, and customer-allocation conspiracies are done in secret; the participants continue to hold themselves out as competitors despite their agreement not to do so. However, the Department of Justice says that telltale signs of antitrust violations include:
- large price changes involving more than one seller of very similar products of different brands, particularly if the price changes are of an equal amount and occur at about the same time
- suspicious statements from a seller suggesting that only one firm can sell to a particular customer or type of customer
- fewer competitors than normal submit bids on a project
- competitors submit identical bids
- the same company repeatedly has been the low bidder on contracts for a certain product or service or in a particular area
- bidders seem to win bids on a fixed rotation
- there is an unusual and unexplainable large dollar difference between the winning bid and all other bids
- the same bidder bids substantially higher on some bids than on others, and there is no logical cost reason to explain the difference.
Whether you are a businessperson or consumer, if you encounter business behavior that appears to violate the antitrust laws, you should inform the Antitrust Division of the Department of Justice at its Washington office or any of its field offices located in major metropolitan areas around the country. This can be done by phone or mail. A large percentage of all federal antitrust investigations result from complaints received from consumers or businesspeople.