If Coca-Cola and Pepsico wanted to merge, the deal would be closely examined by
the federal government before it went into effect. The lawyers and economists in
the Department of Justice might well decide that a merger between these two large
soft drink companies would make the U.S. soft drink market substantially less
competitive and, as a result, would reduce the economic well-being of the country
as a whole. If so, the Justice Department would challenge the merger in court, and
if the judge agreed, the two companies would not be allowed to merge. It is precisely
this kind of challenge that prevented software giant Microsoft from buying
Intuit in 1994.
The government derives this power over private industry from the antitrust
laws, a collection of statutes aimed at curbing monopoly power. The first and most
important of these laws was the Sherman Antitrust Act, which Congress passed in
1890 to reduce the market power of the large and powerful “trusts” that were
viewed as dominating the economy at the time. The Clayton Act, passed in 1914,
strengthened the government’s powers and authorized private lawsuits. As the
U.S. Supreme Court once put it, the antitrust laws are “a comprehensive charter of
economic liberty aimed at preserving free and unfettered competition as the rule
of trade.”