The Sherman Antitrust Act, which was passed in 1890, was the first law passed by the United States Congress to restrict monopolies. A monopoly occurs when a single company or group of cooperative companies have control over over a certain business or aspect of the economy. An arrangement by which the stockholders of several different companies entrust their controlling shares of stocks to a board of trustees is known as a trust, and often results in a monopoly being formed, as the trust has excessive control over an industry. The Sherman Antitrust Act was intended to foster competition by preventing trusts from forming and artificially reducing supply and increasing prices of various products and services.
The most famous of all of the American trusts was Rockefeller's Standard Oil Trust, which was formed in the late 1800s. The trust controlled nearly all of the American oil industry, giving it almost total control of the prices and availability of oil. Trusts such as the Standard Oil Trust used several different tactics to eliminate competition and gain control of an industry. They bought out other companies and lowered their prices to levels that other companies were unable to compete with. They also tried to trap customers in complicated, long-term contracts; if this failed, they sometimes turned to intimidation and violence to get their way.
Monopolies were perceived as a threat to the proper functioning of the American economy, so the Sherman Antitrust Act was put into effect. This stated that any agreements that unfairly restricted competition and affected interstate commerce were considered illegal. It also stated that forming or trying to form a monopoly over a given good or service was considered illegal. Subsequent acts, such as the Clayton Antitrust Act, add further restrictions on mergers, pricing, and related business-related issues.
While the Sherman Antitrust Act is meant to discourage and prevent unfair monopolies, it does not exist to prevent monopolies altogether. The Supreme Court has, in cases relating to the act, distinguished between innocent monopolies and monopolies formed through unfair agreements. Companies that achieve a monopoly through their own independent merit are not punished, as they deserve their control of the market. The antitrust act is still cited in court cases, but has changed with the times. The definition of what makes a market has been the primary matter of debate related to the antitrust act, as trade becomes possible through an ever increasing number of sources and complicates the way people view basic aspects of the economy.