A Comparison of Legal and Illegal Monopolies

Illegal Restraints of Trade: Legal Monopolies in the United States

Several federal laws prohibit the formation and operation of monopolies in the United States at present. The laws against monopolies are intended to prevent these types of business entities from dominating a given market by eliminating all competition, typically to the detriment of consumers. Moreover, monopolies are also characterized by lower-quality products and services and they tend to discourage innovation in ways that are also detrimental to consumers. Against this backdrop, it is reasonable to question why some legal monopolies are still allowed to exist in the United States today. To help answer this question, the purpose of this paper is to provide a review of the relevant literature concerning legal monopolies in the United States today, including the controlling federal legislation as well as their advantages and disadvantages. Finally, the paper presents a summary of the research and important findings concerning legal monopolies in the United States.

Review and Discussion

According to the definition provided by Black’s Law Dictionary (1990), a monopoly is “a privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive right (or power) to carry on a particular business or trade, manufacture a particular article, or control the sale of the whole supply of a particular commodity [or] a form a market structure in which one or only a few firms dominate the total sales of a product or service” (1007). It is important to note, though, that monopolies have not always been illegal in the United States, but the social and economic harm that these businesses entities can cause resulted in growing calls for the federal government to take action towards the end of the fin de siècle and shortly thereafter. For instance, in 1890, the U.S. Congress enacted the Sherman Act as a "comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade” as well as two additional antitrust laws, the Federal Trade Commission Act (which authorized the creation of the Federal Trade Commission) and the Clayton Act, both of which were enacted into law in 1914 (Antitrust Laws 2021).

These three federal laws were directly intended to address the several monopolies that were dominating some of the industrial sectors in the United States at the time. For instance, according to the rationale provided by Milun, “At the beginning of the 20th century, antitrust laws were used to break up large monopolies like Standard Oil and U.S. Steel, companies that had used trust ownership during the Gilded Age of U.S. capitalism to control markets and accumulate enormous wealth” (1031). Moreover, although they have undergone some revisions over the years, these three laws remain the fundamental federal laws in effect against monopolies in the United States today (The Antitrust Laws 2021).

Although each of the three main federal laws noted above against monopolies differ, they are all intended to “protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up” (The Antitrust Laws 3). In other words, these three federal laws are designed to address the main disadvantages of monopolies in a free market economy. For example, the Sherman Act prohibits “every contract, combination, or conspiracy in restraint of trade” as well as all "monopolization, attempted monopolization, or conspiracy or combination to monopolize.” Likewise, the Clayton Act outlaws other practices that are not addressed by the Sherman Act including interlocking directorates (that is, the same person making business decisions for competing companies) and certain mergers and acquisitions where the outcome "may be substantially to lessen competition, or to tend to create a monopoly" (as cited in Antitrust Laws 5-6).

It is also important to note that the provisions of these laws do not necessarily prohibit all types of restraints of trade, and only those business arrangements that egregiously restrain trade are covered (Thoma 2019). For example, although mutual agreements between two people to create a partnership may have the effect of restraining trade but the net effect is not regarded as unreasonable. By contrast, the Federal Trade Commission emphasizes that, “Certain acts are considered so harmful to competition that they are almost always illegal [including] plain arrangements among competing individuals or businesses to fix prices, divide markets, or rig bids” (Antitrust laws 5). These types of arrangements are referred to as pro se violations, meaning that no supporting justification or defense is permitted (Antitrust Laws).

Having established that most monopolies in the United States are outlawed because of the economic harm they cause, the question then arises concerning why some monopolies are legal. Some prominent examples of legal monopolies operating in the U.S. include major sports corporations. In this regard, Courage (2021) advises that, “A strange outlier in the U.S. is the legal monopoly that sports corporations such as the National Football League and Major League Baseball enjoy. They are legally protected from antitrust lawsuits and have enjoyed such protection since the 1920s” (3). It is important to note, though, that in Major League Baseball (MLB) only enjoys a monopoly without limit within the strict parameters of the “unique business of baseball” and the MLB is not authorized to restrain trade in all of the sectors in which it competes (Lucas 1537). Likewise, concessionaire operations at all U.S. national parks are legal monopolies. In this regard, the Concessions Policy Act of 1965 “removed all competition from park concessionaire contracts and . . . enacted into law perpetual monopolies in our national parks” (Keeffe 979). In other words, some specialized types of businesses are allowed to operate monopolies provided that it is in the best interests of the nation and that such operations do not restrain trade in other sectors.