Many industries were controlled by a single business or entity in the late 1800s. This allowed the people in charge of these industries to make a lot of money, but it also made it nearly impossible for other businesses to compete. As a result, monopolies would be able to wield a significant amount of economic power. Smaller firms were either purchased or closed down. This proved to be a problem for a variety of reasons: prices for the things owned by these monopolies could be as high as the trust desired, making it difficult for people to afford; workers in that industry could be underpaid because there were no other companies to work for; and smaller businesses struggled to survive. The Sherman Anti-Trust Act (SAA) was a landmark law passed in 1890 that aimed to break up monopolies and decrease the power of trusts.
The Northern Securities Company was formed in 1890 when industrialists J.P. Morgan and banker John D. Rockefeller joined the Northern Pacific Railway and the Union Pacific Railroad to form the first ever trust in American history. The Association of Railroads (later renamed the American Railway Association) saw this as a "unjustifiable constraint" on competition, and filed a complaint with Congress under Section 1 of the Sherman Anti-Trust Act. The Northern Securities Company was the first corporation to be found guilty of breaking the Sherman Anti-Trust Act. Their assets were liquidated and their shares sold to other railroad companies in 1907. The next big case was that of Standard Oil in 1911, after they acquired more than 90% of the oil industry in America through a series of mergers. It was also used against Monsanto Company's takeover of the entire Colorado extractions business in 1928, which was a success because the company was eventually sold off in a series of mergers and acquisitions.
The issues created by monopolies such as Standard Oil and The American Tobacco Company had to be addressed, or the country's economic instability would continue. Senator John Sherman advocated that trust organizations be abolished, causing them to break up into smaller pieces. The legislation was passed in 1890, and it ensured the much-needed competition in the economy that it was intended to provide.
The Sherman Anti-Trust Act is still in place today, and it has been used in lawsuits involving firms such as Toyota, General Motors, Walmart, Coca-Cola, American Airlines, and Starbucks. In fact, since 1890, over 2400 cases have been filed under it. If a firm is found to be engaged in anti-competitive behavior, it can be penalized up to $100,000 per day for each day that the action was carried out. Since its introduction, the law has been applied 80 times, resulting in fines totaling more than $1 billion dollars.
Disney is another firm that is on the verge of becoming a monopoly. Disney owns Pixar, Marvel, Lucasfilm, ESPN, and ABC, among other entertainment organizations. According to a study, Disney is responsible for 40% of all content produced in the entertainment sector. As shocking as that is, it still means that 60 percent of all other entertainment is provided by independent companies, indicating that Disney is not a monopoly.
While our economy still has numerous powerhouses, none compare to those of the late 1800s, and I don't expect any action to be done against them. The chances of the US government taking matters into their own hands is low, as long as there is still competition in the open market. This does not mean that we do no longer need the Sherman Anti-Trust Act. I would argue that we have much of our competition today because of this act. If we didn't have the ability to break up huge corporations that hurt our economy, it would directly hurt us, the consumer. The Sherman Anti-Trust Act has been amended numerous times since its creation, but its primary goal remains the same: to promote competition.
To learn more: visit the Federal Trade Commission and Corporate Finance Institute websites.
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