Historical Development of Competition Law in USA, Uk, Europe
Introduction
Law governing and regulating all corporations that have the ability to
affect market circumstances are known as competition laws. One large
company can utilize its dominance and strength to prevent smaller
businesses from entering the market. Both a common law system and
competition law are required to curb anti-competitive actions and to
govern this kind of behaviour.
Preventing unfair market practices, preventing selected group of
individuals or businesses from controlling an excessive amount of
power or resources, and ensuring a healthy and equitable market are the
primary goals of competition law. It aims to shield customers against
excessive expenses, poor quality products, and corporate dishonesty.
The Development of US Competition Law
From large industries like coal and steel to commonplace items like
wheat and sugar, numerous large corporations expanded during the
19th century. These large corporations were referred to as "trusts."
When multiple companies band together to control the manufacture,
pricing, or supply of a certain product or an entire industry, this is
known as a trust.
There were two primary outcomes when these trusts were
established.
1. only businesses with massive financial resources could function
in sectors like steel and railroads. Smaller rivals were forced out
of the market as a result.
2. by raising the cost of goods and services, these trusts harmed
customers by implementing unfair practices such price changes,
stringent terms and conditions, and service control.
Trusts grew throughout the Industrial Revolution (1870s–1880s) for a
number of reasons:
• There were abundant natural resources.
• The number of workers rose due to immigration.
• They created new, less expensive production techniques.
Because of its "laissez-faire" (free economy) stance, the US
government rarely interfered in corporate affairs.
This allowed a few large private companies to control raw materials,
production, and sales. As these monopolies spread into more markets,
people began to realize their harmful effects. Eventually, U.S. President
William McKinley pushed for new laws at both federal and state levels
to stop companies in the same industry from joining together and fixing
the market.
While there are numerous statutes aimed at guaranteeing free and fair
competition, they are centered on three main pieces of legislation:
One of America's oldest statutes, the Sherman Act of 1890, has played
a significant role in the development of American competition law. It
was developed to maintain fair competition in the market and was
based on American common law. Businesses are prohibited by law
from entering into agreements with one another that would lessen
competition or foster unfair competition. Its main goal is to stop
businesses from joining together to manipulate pricing, restrict supply,
or damage the market.
The Sherman Act of 1890 was designed to encourage healthy
competition and abolish trusts, or large commercial associations, that
promoted unfair competition.
Section 1: Prohibits between companies agreements that hinder or
restrict trade.
Section 2: Prohibits the establishment of monopolies or attempts to
establish them by placing unjustified restrictions on trade.
Section 5: Prevents unfair trading practices, including fraud, dishonest
competition, and cheating, by both persons and businesses.
Restrictions or gaps:
Businesses started to merge rather than creating trusts.
They were able to control production and prices through these mergers,
resulting in a new kind of monopoly where prices increased and
customers suffered.
Clayton Act, 1914
Reason for Introduction: To manage mergers and acquisitions that
could interfere with competition. To correct loopholes in the Sherman
Act.
Main Focus: Regulates mergers to make sure they do not limit
competition. Prevents pricing control through mergers.
Federal Trade Commission (FTC) Act of 1914
US congress set up an administrative body through the Federal
Commission act of 1914.The Federal Trade Commission (FTC), it was
established to serve as a regulatory body.
FTC's duties include:
• Prevent unfair, dishonest, or fraudulent business
activities for consumers.
• Examine businesses or people who may be involved in
unfair transactions.
• Take steps to put an end to these behaviours.
This act addresses the requirement that all mergers and acquisitions,
including the transfer of securities or assets, be filed with the Federal
Commission in order to guarantee that the transaction won't break anti-
trust rules and negatively impact the US market.
The EU's Competition Law Evolution
Competition law in Europe is mainly divided into two parts:
1. Regulation within Member States – focusing on how
competition rules apply inside each EU country.
2. Regulation of Cross-Border Transactions – covering trade and
business activities between member states.
Origins of European Competition Law
The first competition law in Europe was established through
the Treaty of Paris in 1951, which created the European Coal and
Steel Community (ECSC). This treaty was signed by six
countries: France, Germany, Italy, the Netherlands, Belgium, and
Luxembourg.
The main goals of the Paris Treaty were to:
• Promote equal access to coal and steel production across member
countries.
• Limit the economic power of Germany after World War II.
• Encourage fair and healthy competition in these key industries.
Development of Broader Market Regulations
As the need for cooperation expanded beyond coal and steel—
particularly in atomic energy and broader economic matters—
the Treaty of Rome was signed in 1957. This established the European
Economic Community (EEC) and aimed to create a common market
among the same six founding countries.
Two key provisions in this treaty were:
• Article 85 (now Article 101 TFEU): Prohibited agreements that
restrict or distort competition between member states.
• Article 86 (now Article 102 TFEU): Addressed the misuse of a
dominant market position.
Modern Legal Framework – TFEU
The Treaty of Rome was eventually updated and renamed as
the Treaty on the Functioning of the European Union (TFEU).
Under the TFEU:
• Article 101 prohibits agreements and decisions between
businesses that prevent, restrict, or distort competition within the
EU internal market. Such agreements are considered void.
However, Clause 3 allows certain exemptions if the agreements
improve production, distribution, or promote technical or
economic progress.
• Article 102 prohibits the abuse of a dominant market position.
This includes:
o Charging unfair prices.
o Imposing unfair trading conditions.
o Limiting production or supply.
o Applying different conditions to similar transactions,
putting some businesses at a competitive disadvantage.
UK's Competition Law Evolution
In the UK, restrictions on anti-competitive practices are mainly
governed by two key pieces of legislation:
1. The Competition Act 1998
2. The Enterprise Act 2002
Together, these laws regulate how companies operate, ensuring fair
competition in the market.
1. Competition Act 1998
The Competition Act 1998 focuses on two main areas:
• Anti-competitive agreements: It prohibits agreements between
businesses that may prevent, restrict, or distort competition within
the UK market.
• Abuse of dominant position: It bans companies from using their
dominant market position to engage in unfair practices. Notably,
companies don’t need to be based in the UK to fall under this law,
as long as their actions affect the UK market.
2. Enterprise Act 2002
The Enterprise Act 2002 mainly deals with:
• Mergers and acquisitions: It aims to prevent mergers that could
significantly reduce competition in the UK.
• It also introduced stronger enforcement powers, including
criminal penalties for individuals involved in cartel activities.
Competition and Markets Authority (CMA)
The Competition and Markets Authority (CMA) is an independent,
non-ministerial government department responsible for enforcing UK
competition law. It derives its powers primarily from the Competition
Act 1998 and acts as both:
• An investigative authority – looking into potential breaches of
competition law.
• An administrative body – taking action against businesses or
individuals found to be harming free and fair competition.
