What is Trust-busting? How is it used?


What is Trust-busting? How is it used?

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A monopoly is when a single company controls all of some portion of the economy. For example, one company is the only company that sells oranges. Since they’re the only source of that commodity, they control the price. This is generally seen as a bad thing, so monopolies are outlawed.

Having multiple companies creates competition which is assumed to result in lower prices. But if they collude and simply agree to charge higher prices together, they can achieve the same basic effect as a monopoly. This is a trust. It is also a Bad Thing.

The quintessential “trust busting” legislation in the US is the Sherman Antitrust act. It basically said that companies could not enter into anti-competitive agreements with each other and could not engage in conduct that was essentially a monopoly. Doing so would give the US Government cause in a suit against them.

One example is when various railways formed the Northern Securities Company. The US government sued and dissolved the trust, forcing the constituent railroad companies to operate independently.

Another example was against a pure monopoly, Standard Oil. Again the US government sued, forcing it to break up into 34 independent companies.

Trust Busting is something that is largely accredited to Theodore Roosevelts presidency and is the act of the government intervening in order to block or dissolve monopolies in the free market. This prevents a single company owning the entire supply chain for a good or service and being the only resource for that pricier, which would allow them to inflate prices as much as they’d like.