Clayton Anti-Trust Act - History

Clayton Anti-Trust Act - History

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The Clayton Anti-Trust Act significantly expanded government powers to act against anti-trust violations. It also made corporate officers personally responsible for violations. In addition, it exempted unions and labor cooperatives from the provisions of the act.

The Sherman anti-trust act of 1890 had been the primary weapon in the fight against large corporate monopolies. The statute, however, had two significant shortcomings. First, while it was effective against trusts- which were interlocking ownership arrangement between companies, it encouraged those companies to combine. The courts also interpreted it as a tool to be used against unions, which was not the initial intent. To address these problems President Wilson established the Commission on Industrial Relations. That commission made recommendations that resulted in The passes of the Clayton Act.

Under the act, it became illegal to merge companies that would lessen competition and cause a monopoly to be created. It also forbid the price discrimination that would diminish competition. In addition, it prohibited someone from being on the board of directors of two or more companies that if they were to merge would be considered a monopoly.

Finally, the act clarified that anti-trust legislation did not apply to unions.

Anti-Trust Act

With the support of President Benjamin Harrison, Congress passed the Sherman Anti-Trust Act in 1890. John Sherman, a lawyer and senator from Ohio, was the author of the legislation that attempted to curb the growth of monopolies. The act declared illegal any business combination that sought to restrain trade or commerce. Penalties for violation of the act included a $5,000 fine or/and a year's imprisonment. The act was unable to achieve its original objectives. The two main reasons for this was the vague wording of the legislation and the absence of a strong independent commission for its enforcement.

In 1894, the attorney-general, Richard Olney, used the the Sherman Anti-Trust Act against the American Railway Union during the Pullman Strike. As a result, Eugene Debs, the president of the union, was imprisoned for contempt of court.

In 1914 Henry De Lamar Clayton, a lawyer from Alabama, drafted what became known as the Clayton Anti-Trust Act. The act strengthened the power of government in dealing with monopolies. It forbade agreements between companies to fix or control prices for the purpose of lessening competition. It also prohibited individuals from serving as directors of competing corporations.

Homer Davenport, New York
Evening Journal (1896)

Key Players

Clayton, Henry De Lamar (1857-1929): Clayton represented Alabama in the House of Representatives from 1897 to 1915. A Democrat, he was the author of the Clayton Antitrust Act of 1914.

Culberson, Charles Allen (1855-1925): A Texas Democrat, Culberson served in the U.S. Senate from 1899 to 1923. He chaired the Senate Committee on the Judiciary from 1899 to 1929. President Wilson accused him of working to weaken the provisions of the Clayton Antitrust Act.

Wilson, Woodrow (1856-1924): Wilson, a Democrat, was the28th president of the United States, serving from 1913 to1921. His New Freedom program passed economic reforms in the form of banking and antitrust legislation. He complained that the Clayton Antitrust Act was a weak version of the bill he originally supported.



Byrd, Robert C. "The Woodrow Wilson Years: 1913-1920."In The Senate, 1789-1989. Washington, DC: Government Printing Office, 1994.


USIA. "Summary of Major U.S. Antitrust Laws." Economic Perspectives 4, no. 1 (February 1999).


Bonney, Doug. "The Right to Strike." Kansas City Labor Advocate Online. Know Your Rights [cited 17 October 2002]. <>.

Lucash, Gesmer, and Updegrove, LLC. Web site, The Sherman Antitrust Act of 1890. 2002 [cited 17 October 2002]. <>.

A Moment in Time Archives. "The South's Revenge: The Amazing Congress of 1912." 24 June 2002 [cited 17 October 2002]. <>.

Ramírez, Carlos D., and Christian Eigen-Zucchi. "Why Did the Clayton Act Pass? An Analysis of the Interest Group Hypothesis." Department of Economics, George Mason University. April 1998 [cited 17 October 2002]. <>.

Spartacus Educational. Anti-Trust Act [cited 17 October2002]. <>.

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For example, the internet opens up wide options in customer bases to entrepreneurs looking to start a business. This ensures that plenty of competition exists in any particular industry. It’s incredibly easy for an online company to expand into new areas of market share or explore new customer bases without significant investment in a physical presence in those areas.

However, the interaction between consumer access to free internet space and the companies that provide that access can present a number of conflicts of interest. For example, Amazon can provide an almost unlimited list of types of coffee for consumers to buy, however, the company may be influenced by certain companies to place their products higher in the listings or have it appear in more searches. This affects the competitiveness of alternate companies and controls what the consumer sees and is likely to purchase.

Another example looks at internet connection providers themselves, like Verizon and AT&T, which may make arrangements with other companies to provide better and faster access to one website over another, affecting the consumer experience.

Wilson and Antitrust Legislation

Woodrow Wilson was initially confident that a refinement of the Sherman Antitrust Act (1890) would be sufficient to address the public`s concerns about dealing with giant corporations. The president wanted to move cautiously, fearing that dramatic moves might threaten confidence in the business community. While his initial proposal was under consideration in Congress, Wilson rethought his position. He ended up adopting a two-pronged approach: (1) to create an investigative body to observe corporate activity, and (2) define unfair business practices. Clayton Antitrust Act. Henry D. Clayton of Alabama was the driving force behind the reform legislation in the House of Representatives. The measure that emerged in the fall of 1914 was designed to clarify the existing antitrust law. A number of business practices were prohibited, including:

  • Predatory price cutting
  • Price fixing
  • Ownership of stock in competing companies
  • Interlocking directorates (the practice of having the same individuals serve as directors of competing companies)


Kodak was once one of the biggest names in the camera and film business. At some point in time, Kodak had a 96% share of the market in the United States. This obviously prompted antitrust lawsuits from several parties, private and federal. However, perhaps the most significant of these cases was brought forth by the US government in 1921. The result was a consent decree that basically said that Kodak would only sell its own film and not retain a monopoly on all film produced for either photography and film.

A similar lawsuit arose after Kodak developed colored film. The antitrust case was again brought up by the US government which saw that since Kodak was the only manufacturer of colored film, and the only company that knew how to process it, it had become a monopoly. They would charge other companies a fee to process colored film as well as a fee to deliver it back to them. The result was a deal that allowed other companies to license colored film from the company. These decrees remained in effect until 1994 when they were terminated by a court due to a shift in economic conditions in the US.

What did the Clayton Antitrust Act make illegal?

The Clayton Antitrust Act addresses the illegality of improper price discrimination and monopolies. It also covers unfair mergers and acquisitions — as well as something called interlocking directorates.

Price discrimination

Price discrimination involves selling the same product at different prices to different people. Not all price discrimination is illegal. For example, if your extended family goes to the movies, the seats will not cost the same for everyone. The children, students, and the elderly may pay less for their tickets than will regular adults.

But the kind of price discrimination attacked by the Clayton Act unfairly seeks to drive competitors out of the marketplace. A supplier might give favorable rates to some businesses that purchase their product while giving unfavorable prices to others. The suppliers set their prices so that only large businesses could afford to compete.

In 1936, Congress passed the Robinson-Patman Act as an amendment to the Clayton Act. The amendment outlawed specific discriminatory merchant-to-merchant allowances, services, and pricing.


The Clayton Act can help prevent the rise of monopolies by blocking certain business practices that might eventually lead to monopolies. Under section three, companies can’t enter into exclusive dealing contracts that would dangerously reduce the competition in a particular industry.

Unfair mergers and acquisitions

The Clayton Act doesn’t allow businesses to purchase rivals if the acquisition would severely limit competition. Competitors also cannot merge if the resulting enterprise would unfairly dominate the industry.

The Clayton Act received an amendment in 1976 with the Hart-Scott-Rodino Antitrust Improvements Act that strengthened its stance against mergers. Businesses have to report to the federal government any plans for a large-scale merger or acquisition.

Interlocking directorates

The Clayton Act forbids one person from making business decisions at two or more rival companies. For example, someone cannot sit on the board of directors for competing car manufacturers.

Antitrust Acts

Antitrust Acts are laws to scrutinize the Mergers and Acquisition activities and oversee that it doesn’t lead to one player becoming too big among its peers so that it has the power to take up predatory business policies. It is also known as competition laws. Herfindahl index and the Concentration ratios are commonly used measures to gauge the level of concentration in a market and there are certain ranges that specify different actions to be taken up by the antitrust bodies if the company’s HHI falls in any of these ranges.


In the US, the Sherman Act of 1890 was the first act in the antitrust domain and was later combined with the Clayton Act of 1914 & Federal Trade Commission Act of 1914 do form a comprehensive set of antitrust laws.

Sherman Act deals with market functioning and prohibitions of practices such as cartels or collusion, which hamper free competition by creating high barriers to entry. Further, it also prohibits the abuse of monopoly power. Clayton Act deals with the Merger and Acquisition transactions. Federal Trade Commission act has given laws under civil and criminal categories, of which the FTC deals with civil cases, and the Department of Justice takes up the criminal cases.

Antitrust Acts Example

As explained in the history section, the Sherman Act, the Clayton Act, and the Federal Trade Commission Act form the Antitrust Act in the US. However, in different parts of the world, different Antitrust acts are in place.

For example, the antitrust act in India is known as The Competition Act, 2002, and is regulated by the Competition Commission of India. It came after replacing the Monopolies and Restrictive Trade Practices Act, 1969

Similarly, in Canada, the law is again known as The Competition Act, governed by the Competition Bureau, which involves cases of civil and criminal nature, and the Competition tribunal is the adjudicating body.

Who Enforces the Antitrust Laws in the US?

There are two enforcers of the antitrust laws in the US. The Federal government, along with the Federal Tax Commission, is one of the enforcers, and the US Department of Justice is another. In some cases, their roles and responsibilities overlap however, in most cases, they are segregated. Therefore, before starting an investigation, there is an interdepartmental discussion between the two enforcers to prevent double effort.

One important point is the only the Department of Justice can take up cases of criminal nature. So if the FTC receives any such case, it has to transfer that to the Department of Justice. Further, within the civil segment, the FTC focuses on the high consumer spending sectors such as food, energy, healthcare, internet services, computer technology, among others.

Sections of Antitrust Acts

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#1 – Sherman Act has Three Sections:

  • Section 1 prohibits those agreements which create a restraint on free trade, for example, price-fixing or refusing to deal.
  • Section 2 forbids monopoly or attempt to monopolize.
  • Section 3 extends section 1 to US territories and the District of Columbia.

#2 – Three Important Sections of the Clayton Act are:

  • Section 2 prohibits price discrimination that can reduce competition.
  • Section 3 prohibits those practices which exclude smaller firms to compete, such as predatory pricing.
  • Section 7 prohibits the merger of the purchase of shares that reduces competition or can create a monopoly.

#3 – Sections of Consumer Protection of the FTC Act are:

  • Section 5(a) deals with unfair and deceptive acts of commerce and those affecting commerce.
  • Section 18 gives the trade regulation rule, which treats the violators of section 5(a).
  • Section 45(a) prohibits unfair methods of competition that violate the Sherman Act and the Clayton act.


  1. Keeps a Check on M&A Activities: If two very big firms file for a business combination, they will have to get approval from the antitrust authorities. This keeps a check on mergers, which can create monopolies and are not in the best interest of the consumers.
  2. Small Business Protection: Unfair practices such as predatory pricing, which force smaller businesses to get out of the industry, are checked. This maintains the supply of the product and healthy competition among the producers, keeping the price in the market competitive.
  3. Market Efficiency: If monopolies are restricted, the firms produce at close to efficient levels of production, and therefore, lead to lower deadweight loss and higher consumer and producer surplus.


  1. Delays M&A Activities: If two very big firms file for a business combination, they require approval from antitrust authorities. Such approval is only given when both the firms are willing to give up some of their assets so that the monopoly is not created in the market, and the barriers to entry are not so great that no new firm can enter. This is a time-consuming process and, therefore, prevents the firms from quickly benefiting from the synergies of the combination.
  2. Additional Expense: The firms have to pay for the fee and charges of the antitrust application and approval process, which can be very high and doesn’t guarantee the approval and therefore is a sunk cost.

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Clayton Antitrust Act

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