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The Clayton Act Works with the Sherman Act to Improve Business Practices

In 1914, the Clayton Act was enacted by Congress to strengthen the antitrust laws that were put into place by the Sherman Act. It provided more detailed provisions to prohibit anticompetitive price discrimination, kept corporations from making exclusive dealing practices and expanded the ability for individuals to sue for damages. This act also allowed unions to organize and prevented anticompetitive mergers.

The History behind this Act

In the 1912 presidential election all three parties stood on the belief that Congress had been too lenient with corporations with the Sherman Act of 1890. When Democratic nominee, Woodrow Wilson, won the election he instructed Congress to draft legislation to strengthen the antitrust laws. In 1914, they created the Clayton Act to supplement the existing laws.

Price Discrimination

The Clayton Act addresses corporate price discrimination. This prevents companies from engaging in predatory lending that might lessen competition or create a monopoly. For example, a company cannot have two different pricing strategies in different towns depending on the competition using the higher prices from a town with little competition to fund lower prices in a town with more competition. However, after this provision was widely used in the 1960s to stop price discrimination, stricter standards were developed.

Exclusive Deals

The Clayton Act also prevents companies from selling products with the condition that the buyer can only use their product. For example, a company that provides copy machines cannot be the sole supplier of the ink and paper as well. This creates a monopoly on the product. This is hard to prove however as sometimes the reason for the exclusive deal may be legitimate. In addition, some companies may need exclusivity to ensure that customers are getting the quality product that they expect when they make a purchase.

Private Lawsuits

The Clayton Act addresses private lawsuits as well. While the U.S. government has the right to enforce antitrust laws, up to 90 percent of lawsuits are brought on by private parties. They may even attempt to get treble damages and any attorney fees incurred. The damage awards can be as much as $1 billion making this type of lawsuit very attractive for individuals, businesses and lawyers and over 700 cases are filed in every year in the United States.

Labor Union Organization

The act also deals with the organization of labor unions stating that “the labor of a human being is not a commodity or article of commerce.” Corporations are forbidden from preventing the organization of labor unions. It also keeps labor strikes from being included in antitrust lawsuits. The result of this provision is that labor unions may organize and agree upon wages without being accused of price fixing.

Mergers

The most important provision of this act however is the prevention of anticompetitive mergers. This occurs when a company buys a competing firm. While most mergers allow the companies to create better quality goods at less expensive prices, some mergers limit competition and make price fixing easier. This part of the act was designed to prevent mergers from creating monopolies.

The Clayton Act was designed to supplement existing laws and prevent corporate greed from taking advantage of consumers and smaller businesses. It promotes free trade and prohibits business acts that may harm competition. The act also gives consumers more power over market demand.