Origin and background of competition law in US and Europe5 min read

-Aradhaya Singh

Introduction :

Competition Law has grown enormously in recent years, especially since the 1990s. The growth has been tremendous in terms of geographical regions that have adopted competition law, as well as in the increasing range of economic activities now subject to competition law. With an increasing number of countries that have undertaken economic reforms and embraced the market economy, many of them have also introduced competition law to promote competition culture and process in their markets.

The original concept of competition, dating from the 18th century, and Adam Smith’s Wealth of Nations (1776) merely meant the absence of legal restraint on trade. Modern economic theory, however, which stems from the late 19th century, and led to the first anti-trust legislation, the Sherman Act in the USA in 1890. Thus looking to the development in America many countries gained experience and today almost 90% of the countries across the globe have their own competition law.

Anti trust legislation in USA :

  • Historical Background :

The history of modern competition law is generally traced to the United States, where the Sherman Act was enacted in 1890 out of the growing concern about the formation of trusts by the American companies. Competition law and Anti trust laws are used interchangeably in the US and in most western countries. The understanding of the subject will be completed without tracing out the genesis of these laws. The US could be termed as the cradle of Anti trust laws. USA was first to introduce a coherent competition system. The legislative framework in US is made in three statutes : the Sherman Act of 1890, the Clayton Act of 1914 and the Federal Trade Commission Act of 1914, of which the Sherman Act 1890 is most important. The Sherman Anti trust act passed by the congress almost unanimously in 1890 and remains the fulcrum of Anti trust policy. The Sherman Act 1890 makes it illegal to try to restrain trade or to form a monopoly. It gives the Department of Justice the mandate to go to Federal Court for orders to stop illegal behavior or to impose remedies.

  • Sherman Act 1890 : The American Sherman Act 1890 attempts to sustain the competitive process. The purpose of the Sherman act 1890 originated out of popular concern for the US economy during a period when a small number of corporations and individuals had accumulated a huge amounts of wealth. The Sherman act 1890 became one of the first modern competition law statutes and the first of such statutes to become a significant factor in legal and economic life.

The Sherman Act, 1890 contains two broadly construed substantive sections of importance. Under Section 1 of the Sherman Act, 1809 states, “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” Section 2 of Sherman, 1890 makes it a felony for “every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states or with foreign nations.”

Fines for such violations now include up to $350,000 for individuals and/or three years imprisonment.


Case Laws :

  1. United States vs Addyston Pipe and Steel Co. (1898) : It gave birth to the “ rule of reason” commonly applied in Sherman Act 1890 cases today. Under the Rule of Reason it was said :

“No conventional restraint of trade can be enforced unless the covenant embodying it is merely ancillary to the main purpose of a lawful contract, and necessary to protect the covenantee in the enjoyment of the legitimate fruits of the contract or to protect him from the dangers of an unjust use of those fruits by the other party. “

  •  Standard Oil Company v. United States : In this case the united states Supreme Court has observed:

“The Anti-trust Act of 1890 was enacted in the light of the then existing practical conception of the law against restraint of trade , and the intent of congress was not to restrain the right to make and enforce contracts, whether resulting from combination or otherwise, which do not unduly restrain inter-state of foreign commerce from contracts, or combination by methods, whether old or new which would constitute an interference with, or an undue restraint upon it”.


Competition Law in the Europe :

Historical Background :

The idea of using law to protect the competitive process emerged in Europe in the 1890s approximately at the same time as the United States enacted its  first Antitrust Statute. In Austria, a group of scholars and administrators articulated the idea of using law to encourage economic growth and competitiveness, reduce antagonisms between workers and owners and among regional ethnic groups, it would also give the administrative elite a voice in economic development without giving them excessive opportunities to interfere with business decision making process. The proposed legislation was discussed and almost enacted, but political turmoil within the Empire in 1897 prevented its enactment. After the end of the Second World War, many European Governments turned to Competition Law as means of encouraging economic revival, reducing class antagonisms and achieving political acceptance of post war hardships.

Thus, the Competition Law is one of the areas of authority here in Europe. It comprised of three main policy areas :

  • Anti Trust
  • Mergers
  • State Aid

Conclusion :

Modes of analysis, presumption of being legal or not and economic theories of harms and benefits have undergone changes with rapid changes being witnessed by national economies across the world. Therefore, developing countries like India and many other countries should have sui generis approach in framing their own Competition Laws, by taking some lessons from the competition regimes of the developed countries like the United States of America (USA).


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