Exclusive Future of Technology Research Package

Foundations of Modern Antitrust Ideologies (1890s – 1970s)

Whereas trusts are illegal, the legality of monopolies is more nuanced. Having monopoly power is not in itself an antitrust violation, though it is a prerequisite for an antitrust charge. At the heart of the argument for the existence of monopolies is Judge Learned Hand’s view in the landmark case United States v. Alcoa: “The successful competitor, having been urged to compete, must not be turned upon when he wins.”

The United States has a long and complicated relationship with trusts and monopolies. While we often see the two terms used interchangeably, it is important to distinguish the two. Trust is when several businesses within the same industry join forces to control price and distribution of products and services[1]. Monopoly is when one business controls the price and distribution of products and services within one sector of the economy[2].

Price fixing, bid rigging, and other forms of collusion within a trust is illegal as it undermines one of the fundamental principles of capitalism: free and open competition[3]. Proving collusion does not require the prosecutor from the United States Department of Justice to provide evidence of a formal written or express agreement. Direct evidence such as the testimony of a participant or even circumstantial evidence would suffice[4].  Identical spelling errors, price documents with white-outs suggesting last-minute changes, statements that a customer ‘belongs’ to a particular entity have all initiated successful criminal antitrust prosecutions[5]. If the offense has been committed after 2004, “the maximum Sherman Act fine is [generally] $100 million for corporations and $1 million for individuals, and the maximum Sherman Act jail sentence is 10 years.” [6]

Price fixing and bid rigging are considered to be per se violations of the Sherman Antitrust Act of 1890[7], the first antitrust legislation established by the United States Congress[8]. It means that once a collusive scheme has been determined, any procompetitive justifications would be deemed irrelevant[9]. More complexity has been introduced since.

Whereas trusts are illegal, the legality of monopolies is more nuanced. Having monopoly power is not in itself an antitrust violation, though it is a prerequisite for an antitrust charge[10]. At the heart of the argument for the existence of monopolies is Judge Learned Hand’s view in the landmark case United States v. Aluminium Company of America (Alcoa): “The successful competitor, having been urged to compete, must not be turned upon when he wins.”[11].

Section 2 of the Sherman Act “makes it illegal to acquire or maintain monopoly power through improper means”[12]. These improper means include monopolization, attempted monopolization, and conspiracy to monopolize[13]. To prove monopolization requires a demonstration of both (1) monopoly power and (2) the wilful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”[14] To prove attempted monopolization requires (1) proof of anticompetitive behaviour, such as exclusionary or predatory conduct, (2) the intent to monopolize, and (3) a “dangerous probability of achieving monopoly power[15].

The primary challenge to enforcing the Sherman Act is determining what behaviour constitutes as improper, since “[often the same conduct can] have the potential for both beneficial cost reductions, innovation, development, integration, and at the same time potentially anticompetitive exclusion”[16].

The Sherman Act has faced other implementation challenges historically. More than a decade after its enactment in 1890, the Sherman Act had only been effective in squashing labour unions[17] due to the differing interpretations of the phrase “trade and commerce” within different states[18].

In 1901, Theodore “Teddy” Roosevelt was ushered into the White House after antitrust conservative William McKinley’s assassination. “His determination that the public was ruler over the corporation, and not vice versa, would make him the single most important advocate of a political antitrust law” [19]. During his presidency between 1901 and 1909, Roosevelt took on two of the biggest monopolies of the time, J.P. Morgan, from “Big Railway” though he later owned companies in other industries such as steelmaking, and John D. Rockefeller, from Standard Oil “Big Oil”[20]. Roosevelt saw trusts’ growing power as a threat to a democratic government, feared people’s demand for more extreme political solutions[21], and was successful in blocking a “merger to monopoly” by Morgan through the Sherman Act. His lawsuit against Standard Oil in 1906 would only come to a close after his presidency[22].

Perhaps an extension of the role personal relationships played in businesses at the time, when Morgan could “arrive at the White House and demand to see the president” [23], Roosevelt “famously believed he could distinguish between good trusts and bad trusts” [24]. He attempted to draft a new bill to regulate trusts by nationalizing them[25] rather than dissolving them[26], but the bill was rejected by the Congress[27] as it “alienated labour, small business, and big business all at the same time[28].

Roosevelt’s earlier beliefs were influenced by Herbert Croly’s book The Promise of American Life, as was Woodrow Wilson’s[29]. Croly’s arguments offer a glimpse of the antitrust sentiment at the time. In The Promise, Croly argues that trusts enhance production efficiency and reduce waste[30], though he also acknowledges that the industrial advancements within the United States has given rise to “glaring inequalities of condition and power” [31]. Ironically, he does not consider the American Railroad industry at the time to be a monopoly, even though he acknowledges that they are provided with “a species of economic privilege which enable them to wring profits from the increasing American market disproportionate to the value of their economic services”; that they took advantage of the “favourable corporate laws of some states [to] prey upon the whole country”; and “attempted to control the official makers, administrators, and expounders of the law” [32].

The inadequacies of the Sherman Act and the abuse of big companies’ economic power was so problematic that it became one of the decisive factors in the election of Woodrow Wilson in 1912[33] despite Standard Oil’s dissolution in 1911. Most notably, Standard Oil Company of New Jersey et. al. v. United States sets a precedent for applying the “rule of reason” in antitrust law for certain categories of activities previously determined to be unlawful per se. Wilson and his economic advisor Louis Brandeis, believed in “the curse of bigness”, a phrase Brandeis coined to describe what is now known as diseconomies of scale[34]

While Wilson’s ambition was commendable, the specific strategies for monopolization confounded even the economists at the time[35]. Due to the Clayton Act’s inability to clarify “anticompetitive” practices and its harsh punishment, constituents feared they would be prosecuted and jailed for ordinary business dealings[36]. As a result, the United States Congress made the description of anticompetitive practices vaguer and removed the criminal penalties before it was enacted in 1914. Under the Clayton Act, mergers or acquisitions above an annually updated threshold are required to notify both the Antitrust Division and the Federal Trade Commission. The Federal Trade Commission Act, also a civil statute with no criminal penalties, which passed in 1914, created the FTC to supplement the Clayton Act and determine what constitutes as “unfair and deceptive acts of practices”[37].

“Between 1940s and the late 1970s, against the spread of fascism in Europe, Middle East, Asia, and Africa, antitrust came to represent the preservation of economic and political freedom. In 1975, the FTC was given more authority by the Congress to set industry-wide trade rules.[38].”

by Marvin Cheung, Head of Research and Strategy at Unbuilt Labs

Browse the rest of the research package “Understanding the New Antitrust Movement Against Big Tech” by Marvin Cheung:


[1] “Monopolies and Trusts | Encyclopedia.Com,” accessed December 12, 2020, https://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/monopolies-and-trusts.

[2] Ibid.

[3] The United States Department of Justice, “Price Fixing, Bid Rigging And Market Allocation Schemes,” June 25, 2015, https://www.justice.gov/atr/price-fixing-bid-rigging-and-market-allocation-schemes.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Ibid.

[8] “Sherman Antitrust Act | Definition, History, & Facts,” Encyclopedia Britannica, accessed December 11, 2020, https://www.britannica.com/event/Sherman-Antitrust-Act.

[9] “Per Se Rule,” Practical Law, accessed December 12, 2020, http://uk.practicallaw.thomsonreuters.com/8-383-6381?transitionType=Default&contextData=(sc.Default)&firstPage=true.

[10] United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1996).

[11] United States v. Aluminum Company of America (Alcoa), 148 F.2d 416 (2d. Cir. 1945).

[12] The United States Department of Justice, “Competition And Monopoly: Single-Firm Conduct Under Section 2 Of The Sherman Act : Chapter 1,” June 25, 2015, https://www.justice.gov/atr/competition-and-monopoly-single-firm-conduct-under-section-2-sherman-act-chapter-1.

[13] Ibid.

[14] United States v. Grinnell Corp., 384 U.S. 563, 570­71 (1966)

[15] Ibid.

[16] Sherman Act Section 2 Joint Hearing: Welcome and Overview of Hearings Hr’g Tr. 25, June 20, 2006

[17] Langlois, Richard N., Hunting the Big Five: Twenty-First Century Antitrust in Historical Perspective (January 15, 2018). Available at SSRN: https://ssrn.com/abstract=3124356 or http://dx.doi.org/10.2139/ssrn.3124356  Pg. 7.

[18] “Monopolies and Trusts | Encyclopedia.Com,” accessed December 12, 2020, https://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/monopolies-and-trusts.

[19] Tim Wu, The Curse of Bigness: Antitrust in the New Gilded Age (Columbia Global Reports, 2018). Pg. 47.

[20] Ibid. Pg. 48.

[21] Ibid. Pg. 49.

[22] Ibid. Pg. 66.

[23] Ibid. Pg. 75.

[24] Langlois, Richard N., Hunting the Big Five: Twenty-First Century Antitrust in Historical Perspective (January 15, 2018). Available at SSRN: https://ssrn.com/abstract=3124356 or http://dx.doi.org/10.2139/ssrn.3124356  Pg. 9.

[25] Tim Wu, The Curse of Bigness: Antitrust in the New Gilded Age (Columbia Global Reports, 2018). Pg. 66.

[26] “Monopolies and Trusts | Encyclopedia.Com,” accessed December 12, 2020, https://www.encyclopedia.com/history/encyclopedias-almanacs-transcripts-and-maps/monopolies-and-trusts.

[27] Ibid.

[28] Langlois, Richard N., Hunting the Big Five: Twenty-First Century Antitrust in Historical Perspective (January 15, 2018). Available at SSRN: https://ssrn.com/abstract=3124356 or http://dx.doi.org/10.2139/ssrn.3124356  Pg. 10.

[29] “Herbert David Croly | American Author and Editor,” Encyclopedia Britannica, accessed December 12, 2020, https://www.britannica.com/biography/Herbert-David-Croly.

[30] Croly, Herbert D. 1909. The Promise of American Life. New York: Macmillan.

[31] Ibid.

[32] Ibid.

[33] “Federal Trade Commission | Encyclopedia.Com,” accessed December 12, 2020, https://www.encyclopedia.com/social-sciences-and-law/political-science-and-government/us-government/federal-trade-commission.

[34] Tim Wu, The Curse of Bigness: Antitrust in the New Gilded Age (Columbia Global Reports, 2018). Pg. 70.

[35] Langlois, Richard N., Hunting the Big Five: Twenty-First Century Antitrust in Historical Perspective (January 15, 2018). Available at SSRN: https://ssrn.com/abstract=3124356 or http://dx.doi.org/10.2139/ssrn.3124356  Pg. 11.

[36] McCraw, Thomas K. 1984. Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, Alfred E. Kahn. Cambridge: Harvard University Press. Pg. 120.

[37] “About the FTC,” Federal Trade Commission, March 1, 2013, https://www.ftc.gov/about-ftc.

[38] Ibid.