Understanding Antitrust Laws

Understanding Antitrust Laws

If you’re like most people, you have only a vague notion of what antitrust laws are all about. You may know that they involve unfair competition and monopolies, or that big corporate mergers and acquisitions sometimes create antitrust issues.

What you may not know is that antitrust laws can apply to small businesses as well as big ones. And if you’re not careful, you can violate them in your efforts to get an edge on your competitors.

Here’s what you need to know to stay on the right side of antitrust laws.

What are Antitrust Laws?

Antitrust laws are federal laws that protect consumers from predatory business practices by ensuring that there is fair competition between businesses. The idea is that if there is free and open competition, businesses will strive to be honest and provide better goods and services to consumers on better terms. Antitrust laws prohibit a broad range of questionable business practices, including:

  • Dominating the market or engaging in practices that lead to a dominant position, including predatory pricing, market allocation, bid rigging, price gouging and refusing to deal.
  • Setting up mergers and acquisitions that threaten other companies’ ability to compete for business.
  • Doing things that restrict free trading and fair competition.

There are three major antitrust laws:

  • Under the Sherman Act, certain practices are illegal because they restrain free trade. They include monopolies, price fixing and bid rigging. The Act ensures that customers can get the best products and services for the lowest cost.
  • The Clayton Act prohibits additional practices that are not specifically covered by the Sherman Act. Those practices include certain mergers and having the same person making the decisions for competing companies.
  • The Federal Trade Commission Act prohibits unfair competition and unfair or deceptive practices or acts.

How Do Antitrust Laws Apply to Small Businesses?

It’s easy to see how a huge corporation, or a less than honest businessperson, could run afoul of antitrust laws. However, antitrust laws can also be a trap for a well-meaning small business owner. For example, many businesses collaborate with competitors through trade organizations, but an innocent conversation about pricing at a trade show can turn into an antitrust violation.  Merging with competitors or taking advantage of exclusive distributorship agreements can also raise antitrust concerns.

Here are some ways to ensure that your small business does not violate antitrust laws:

  • Never discuss pricing with a competitor. That includes informal discussions at trade shows, networking events or online forums. Pricing discussions can lead to price fixing charges.
  • Don’t participate in trade organizations that aren’t designed to benefit your entire industry.
  • Don’t make sales that require a customer to purchase a second product from you. These sorts of tie-ins can violate antitrust laws by restricting competition for the second item.
  • Don’t charge different prices to two businesses that are in competition with one another. Charging a lower price in an effort to help a customer be more competitive can be an antitrust violation.
  • Never discuss allocating certain customers or markets to your business and other customers or markets to a competitor. Dividing up customers or territories can restrain free competition.
  • Exclusive contracts that require your dealers to sell only your product or that restrict your suppliers from servicing your competitors can violate antitrust laws by making it harder for new businesses to get into the marketplace.
  • Don’t make claims about your competitors’ products or services unless you can prove them.