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They simply would acquire the assets of a target firm, rather than the stock.
IN THE U S MONOPOLY FORMATION IS ILLEGAL HOW TO
If the plaintiff wins, costs must be borne by the party violating prevailing antitrust law, in addition to the criminal penalties imposed under the Sherman Act.Īcquirers soon learned how to circumvent the original 1914 statutes of the Clayton Act that applied to the purchase of stock. State attorneys general also may bring civil suits. The Clayton Act allows private parties injured by the antitrust violation to sue in federal court for three times their actual damages.
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Unlike the Sherman Act, which contains criminal penalties, the Clayton Act is a civil statute. Interlocking directorates also are made illegal when the directors are on the boards of competing firms. Section 7 prohibits mergers and acquisitions that may substantially lessen competition or tend to create a monopoly, and also makes it illegal for one company to purchase the stock of another company if their combination results in reduced competition within the industry. Tying of contracts-in which a firm refuses to sell certain important products to a customer unless the customer agrees to buy other products from the firm-also is prohibited. Section 5 of the act makes price discrimination between customers illegal, unless it can be justified by cost savings associated with bulk purchases. It outlaws certain practices not prohibited by the Sherman Act and helps the government stop a monopoly before it develops.
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The Clayton Antitrust Act was enacted in 1914 to strengthen the Sherman Antitrust Act. Section II applies to firms already dominant in their targeted markets. Section I of the act prohibits new business combinations that result in monopolies or in a significant concentration of pricing power in a single firm. They include agreements to fix prices, rig bids, allocate customers among competitors, or monopolize any part of interstate commerce. It makes illegal all contracts, combinations, and conspiracies that ‘‘unreasonably’’ restrain trade. The act defines broad conditions and remedies for such firms that are deemed to be in violation of current antitrust laws, and applies to all transactions and businesses involved in interstate commerce or, if the activities are local, all transactions and business “affecting” interstate commerce. Passed in 1890, the Sherman Antitrust Act remains the most important source of antitrust law today. The FTC was established in the Federal Trade Commission Act of 1914 with the specific purpose of enforcing preceding antitrust laws such as the Sherman, Clayton, and Federal Trade Commission Acts. The Department of Justice (DoJ) and the Federal Trade Commission (FTC) have primary responsibility for enforcing these laws. Donald DePamphilis, in Mergers and Acquisitions Basics: All You Need To Know, 2011 Federal Trade Commission and Department of Justiceįederal antitrust laws exist to prevent individual corporations from assuming a level of market power that makes them able to limit their output and raise prices without concern for any significant competitor reaction.