Per Se Violations Explained
The Sherman Antitrust Act covers a wide variety of different business practices that can be considered to constrain interstate commerce. Even though the Sherman Act was written into law in 1890, the forms of antitrust law are readily applicable today.
There are a wide variety of different forms of abuses a business can undertake to violate antitrust law. However, the judicial response to such violations come under the consideration of the per se form of logic or rule of reason method. Antitrust law that falls under the per se form of logic are infractions that are blatantly and inherently obvious to judicial officials, as well as the judiciaries investigators.
Usually per se violations that violate antitrust law, which are the most common, are price fixing or bid rigging. Both practices are inherently against the freedom of interstate commerce. Price fixing occurs when two or more companies collude to set a standard price; usually obscenely low, then moving up to a higher price. Initially rival companies within the same market can conspire or even enter into written agreements to both artificially set the price of their goods low, very low in some cases.
While it may cause a financial loss to the companies initially, it can be made up on the back end by driving up the price. Setting the price low and controlling the majority of the market share between the two rival companies will force their smaller competitors out of business. Once their competitors are out of business, they can then set the price higher while retaining a larger market share for both entities, gaining financially in the process. This seriously constrains interstate commerce, as many of the smaller competitors cannot sustain the artificially lower price.
The other form that usually violates antitrust law concerns bid rigging. Companies do not control every stage of their manufacturing process. In many cases, this is contracted out to smaller firms to, for example, make the metal that will be used to form a car door. Bid rigging occurs when the car manufacturer conspires with a metal plant prior to an open competition for the contract. In these cases, both the car manufacture and the conspiring metal works plant win.
Instead of an open, fair competition, a manufacturer already knows the contract will come to them since they made certain concessions and deals in backdoor meetings with the entity selling the contract. While this will benefit those two parties, it restrains interstate commerce since the other viable options for the contract have, in essence, already been excluded from the process. While a charade of bid selection may occur to give the illusion of legality, the outcome is already decided.
Both forms of violations fall under the per se rule since they are obvious infractions to interstate commerce, restraining the ability of competitors to operate within the framework of a fair free market. While these examples simply illustrate restraints on interstate commerce, the same logic applies to foreign trade or commerce as well. Since the Sherman Act is a Federal statue, all violators of antitrust law are charged and prosecuted with felonies.
Related Topics
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- All You Need to Know About the Sherman Antitrust Act
- Horizontal Restraints Defined
- Sherman Act's Major Provisions You Must Know
- A Look Into Attempts to Monopolize
- What are Vertical Restraints