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Chapter 5. The Clayton Act

Kir Nuthi and Chris Marchese would like to add a special thank you to our former intern, Malena Dailey, for her research and help in this chapter.

Now that we’ve covered the basics of the Sherman Act, Chapter 5 will address the Clayton Act—a law that supplements the Sherman Act by addressing specific anticompetitive practices that focus mainly on dealings between firms as well as mergers and acquisitions.

5.1 The Clayton Act was passed to address anticompetitive business practices not covered by the Sherman Act. 

After the Sherman Act was passed in 1890, it was found to be too broad in practice. Congress wanted additional antitrust legislation to narrowly target specific anticompetitive practices like collusive mergers and harmful pricing schemes designed to kill off competitors. 

5.2 The Clayton Act prohibits price discrimination, exclusive dealings, and harmful mergers between companies.

To address these new concerns, Congress passed the Clayton Act in 1914 to prohibit:

  • anticompetitive mergers;
  • discriminatory pricing practiceas; and
  • other behavior that could harm competition. 

While the Clayton Act has 27 sections, these are the most critical for antitrust:

  • Section 2 prevents price discrimination by companies.
    • Different prices can’t be arbitrarily charged to different customers. 
  • Section 3 prevents excluding dealing contracts that pose a threat to competition.
    • Exclusive dealing contracts is a fancy term that describes when companies limit where they and their competitors can buy or sell their products. When exploited, this can shut other businesses out of marketplaces, create supply chain issues, and more. 
  • Section 7 prohibits harmful mergers
    • Harmful mergers and acquisitions are those that if completed would pose a substantial risk to consumer welfare.

5.3 The Clayton Act has been amended twice to cover more anticompetitive practices.

The Robinson-Patman Act of 1936 made sure the Clayton Act covers discriminatory prices and addresses anticompetitive behaviors.

The Hart-Scott-Rodino Act of 1976 ensures that businesses planning to merge have to tell the government in advance for mergers of a certain significance. After telling the Federal Trade Commission and Department of Justice, they have to wait and see if their merger is allowed or if it substantially hurts competitors.