Federal Trade Commission Act of 1914

Encyclopedia of Business, 2nd ed., (1999) by Phyllis Bunn, Laurie Barfitt

FEDERAL TRADE COMMISSION ACT OF 1914

The Federal Trade Commission Act of 1914 prohibits unfair methods, acts, and practices of competition in interstate commerce. It also created the Federal Trade Commission, a bipartisan commission of five presidential appointees, confirmed by the Senate, to police violations of the act. The Federal Trade Commission's (FTC) function is to counter deceptive acts and practices and anti-competitive behavior by businesses. The FTC enforces the Clayton and Federal Trade Commission Acts as well as a number of other antitrust and consumer-protection laws. The FTC's rulemaking authority enables it to issue rules interpreting the antitrust laws that govern either all members of industry or apply to specific business practices. When a rule is violated, the FTC can initiate civil proceedings in a federal district court to obtain injunctive relief and civil damages.

The Federal Trade Commission Act of 1914 (and the provisions of the antitrust acts that preceded it) promotes free and fair trade competition by investigating and preventing violations of the law. Key areas covered by the act, as well as other antitrust laws, include:

Price fixing:

There are two types of price fixing: vertical and horizontal. Vertical price fixing occurs when manufacturers make express or implied agreements with their customers obligating them to resell at a price dictated by the manufacturer. Manufacturers can suggest retail prices but not fix them by agreement. Few sellers are caught vertically fixing prices; instead, they intimidate retailers by cutting off sales (Garman, 2005). Horizontal price fixing occurs when competitors make direct agreements about the quantity of goods that will be produced, offered for sale, or bought. According to Garman (2005), in one case, an agreement by major oil refiners to purchase and store the excess production of small independent refiners was found to be illegal because the purpose of the agreement was to affect the market price for gasoline by artificially limiting the availability of supply. The government can take action, civil and/or criminal, in cases of price fixing.

Unfair competition:

The FTC and antitrust policies that preceded it are in agreement on concepts of unfair competition. Examples of unfair competition are larger businesses using their size or market power to gain lower prices from suppliers or a manufacturer granting discounts for the same products sold to larger firms without granting similar discounts to smaller businesses when selling costs do not vary.

Merger prohibition:

A merger is the acquisition of one company by another. The FTC established guidelines and criteria that challenge mergers that lessen competition. The judgment of the courts is that a restraint of trade occurring through a merger must be undue and unreasonable before it is held illegal.

Deceptive practices:

False advertising is one example of deceptive practice. The FTC considers an advertisement deceptive if it contains misrepresentation or omission that is likely to mislead consumers acting reasonably under the circumstances to their detriment.

Even though there are differences of opinion as to the effectiveness of antitrust policy, everyone (consumers, competitors, and prospective business owners) benefits from a more competitive economy. Thus, antitrust policy is an important element in public policy regarding business. Unfortunately, there are limits to what is accomplished mainly because the amount of funds provided by Congress for antitrust issues has a significant impact on enforcement.