Definition
Restraint of Trade
Restraint of trade refers to any activity or agreement that interferes with free competition in commercial transactions. Under common law and antitrust laws, such restraints are considered illegal when they restrict production, influence prices, or otherwise control the market, causing harm to consumers. Examples include price-fixing, monopolies, and trade associations colluding to control market prices.
Legal Framework
- Common Law: Historically focused on contracts and agreements that prevented fair competition. Courts could void contracts found to restrain trade.
- Antitrust Laws: Primarily referenced in the U.S by the Sherman Act, the Clayton Act, and the Federal Trade Commission Act. These laws aim to promote competition and prevent monopolies or alliances that restrict free trade.
Examples
- Price Fixing: Competitors agree to set prices at a certain level to avoid market competition.
- Market Division: Companies agree to divide markets among themselves, ensuring they do not compete in each other’s territory.
- Exclusive Supply Agreements: Where a supplier agrees to sell a product only to a certain distributor, limiting the market availability.
Frequently Asked Questions
What is the primary purpose of antitrust laws?
Antitrust laws aim to promote fair competition for the benefit of consumers, ensuring a diverse marketplace free from monopolistic and anti-competitive practices.
Can all contracts that restrain trade be considered illegal?
Not necessarily. Some restraints on trade might be legal if they are reasonable and do not significantly harm competition or restrain market freedom excessively.
What are some legal restraints of trade?
Agreements must be reasonable in both duration and territorial scope. Real estate contracts, employment agreements, and some franchise agreements may have legal, reasonable restraints if they are necessary to protect legitimate business interests without excessive market restriction.
How can consumers be harmed by restraint of trade practices?
Harm to consumers can occur through inflated prices, reduced product availability, stifled innovation, and reduced choice due to lack of competition.
What are the penalties for companies found guilty of restraint of trade?
Penalties can include fines, dissolution of offending agreements, damages payments to affected parties, and in severe cases, the disbanding of monopolistic entities.
How do regulators typically uncover restraint of trade practices?
Regulators use market analysis, whistleblower reports, competitor complaints, and various investigative methods to uncover illegal trade restraints.
Related Terms
Monopoly
A situation where a single company or group exclusively controls a commodity or service in a particular market, stifling competition.
Antitrust Law
Legislation enacted to promote free competition in the market and prevent unfair business practices that control prices or exclude competition.
Cartel
A group of independent market participants who collude to control prices, production, or marketing of a product or service, undermining fair competition.
Exclusive Dealing
A practice where a supplier restricts a distributor or retailer to only sell their products, potentially limiting competition despite lawful contexts.
Online Resources
- Federal Trade Commission (FTC) - Competition Enforcement
- U.S. Department of Justice - Antitrust Division
- European Commission - Competition Policy
Suggested Books for Further Studies
- “Antitrust Law, Policy, and Procedure: Cases, Materials, Problems” by E. Thomas Sullivan and Herbert Hovenkamp
- “The Antitrust Paradigm: Restoring a Competitive Economy” by Jonathan B. Baker
- “Global Competition Law and Economics” by Einer Elhauge and Damien Geradin
