What is the Clayton Antitrust Act?

Definition: The Clayton Antitrust Act is an amendment approved by U.S. Congress in 1914 that establishes additional provisions against unfair business practices. It is a complement to the U.S. antitrust laws that previously existed.

What Does Clayton Antitrust Act Mean?

The Clayton Antitrust Act was created to reinforce the Sherman Antitrust Act, approved by Congress in 1890. The idea behind Clayton’s Act is to promote fair competition, by establishing clear and enforceable rules against practices such as monopolies, price discrimination and price fixing. With the development of this new Act, companies with vast influence in different industries were forced to limit their reach to avoid abuses. The large holding companies that were created in the 20th century were suffocating small businesses by creating an unfair business environment that reduced the chances these businesses had to be sustainable.

There were important modifications made to the Sherman Act through this new antitrust legislation, such as the rights granted to unions and other labor associations to protect the fairness of the relationship between the company and its workers. Also, new rules were established for mergers and acquisitions. Finally, the U.S. Congress designated two institutions to oversee and enforce this act. These institutions are the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice.

Clayton Antitrust Act Example Explained

Worldwide Tires Co. is a recently formed consortium between the three largest global tire companies. The consortium controls 75% of the global market and almost 95% of the U.S. tire market. This formal alliance was formed without the previous approval of U.S. authorities and that caused an investigation from the Federal Trade Commission. This investigation concluded that the newly formed holding company jeopardizes the fairness of the U.S. tire market and it breaches the Clayton Act.

The merger must have been authorized previously by both the Commission and the Department of Justice. Given that this procedure was not followed in the first place, the Commission ordered the immediate dissolution of the consortium and in the case that the three companies were still interested in pursuing this alliance; they must submit a proposal to the institutions mentioned previously in order to get their consent before the consortium is formed.