The government has an obligation to protect its citizens against market failures and thus takes steps to ensure that the conditions outlined above do not exist. The government guards against monopolistic business practices such as the formation of trusts. Most students are familiar with the effect that Trusts had on the American business landscape and the American consumer at the turn of the nineteenth century. Their monopolization of various industries led to increased price, lower quality and the abuse of workers. Many laws were passed to deal with the formation of trusts.
Antitrust laws are legislation under which the United States government acted to break up any trust.
The first of these laws was the Sherman Antitrust Act, founded upon the principle in the Constitution that Congress could regulate interstate commerce. The Sherman Act declared illegal every contract, combination, or conspiracy in restraint of interstate and foreign trade. In 1914 it was supplemented by the Clayton Antitrust Act, which prohibited exclusive sales, contracts, inter corporate stock holdings, and price discrimination in the cases where it may lead to a decrease in competition. That same year, the Federal Trade Commission Act was passed. The Robinson-Patman Act of 1936 was designed to enhance the Clayton Act, particularly the clause that dealt with price discrimination.