What You Must Know About Monopolization

Contained within the Sherman Antitrust Act are two sections. The first section addresses company behavior through negations and deals, and the second deals with the ability of an individual to monopolize a market. In each section there are different items of focus. In the first section the focus is on companies, while in the second it is on individuals.

In economics a monopoly occurs when within a given sector of the economy there is a one and only one provider of the good or service. A monopoly is also marked by a lack of competition. Indeed, within economics the true definition states that in a monopolistic market there is zero competition. The Sherman Antitrust Act’s main focus is to limit the occurrence of monopolies within the market and to ensure a free market within interstate commerce.

The study of economics defines a free market system and a monopoly very differently. In a free market system price is set by supply and demand, with supply and demand meeting at a point of equilibrium considered the best place for the market to operate. In a monopoly the idea of price with relation to supply and demand is eliminated. Instead a monopolistic company can define the price for which they sell their good or service.

Monopolization within a free market system can occur and can present serious dangers for the free market system as a whole. The process of monopolization rarely happens by chance. Instead an individual seeks out to monopolize the market with the end goal of being able to set a price of a good or service for the whole sector. This can either happen internally for a company acquiring all the necessary levels in the manufacturing process or through the use of contracts. In either instance it becomes a restraint on interstate commerce, and therefore, illegal under the Sherman Act.

In economics it is very important to understand that general size of a company does not necessarily confer it a title of monopoly. While in traditional economics a monopoly is defined as the sole provider, in reality this is usually not the case. A company can be considered a monopoly if the company’s size to market share is large enough to directly affect price and output.

While not all monopolies are bad, some are even government-regulated, there are some that can be detrimental to competition, and therefore, future market innovation. This is why the Sherman Act focuses on individuals in the second section and their explicit intent to monopolize a sector of the economy, and then to use that monopolistic power that comes with being a price setter.

Intent within the second part of the Sherman Act is very important because it puts a high value on personal responsibility. There have been many business owners within the United States that have come to have monopolistic control, but the dissolution of their company is based on their original intent.

If an owner seeks only to produce a superior product, therefore monopolizing the market, the only item he can be found guilty of is creating a superior product, not a legal crime. However, if the intent is to monopolize, then it is criminal in nature and is a violation of the Sherman Antitrust Act.