What was the Antitrust law designed to prevent? In your opinion, what are some of its downfalls?

Answer 1

This is a really over-simplified answer:

Tha Anti-trust laws were originally intended to prevent sharp practices and the creation of price-fixing conspiracies.

Under the traditional theory of Adam Smith, the law of the market place dictates that supply and demand dictate price. If a product is good, it will be in demand, and demand will drive up price until people will no longer pay more than x dollars for the product.

Also at the heart of our economic system is the patent and trademark system which is designed to protect intellectual property.

When an inventor licenses product out to different competitors to produce that product, they tend to want to "fix" the price to avoid competition and share in the demand that the market place will provide.

The problem is that there's no competition. Producers are not competing for your dollars, they are fixing prices so that you pay the most for the product you want. That's called a "monopoly" where a consortium of producers control what's available in the marketplace and artificially set prices.

Enter Antitrust legislation. A conspiracy to fix prices is illegal. The law provides for damages of all kinds, sufficient to punish businesses who ignore the law, and make it painful enough so that they don't conspire against consumers who buy their products.

Imagine if all of the railroads got together and fixed the price of a passenger ticket anywhere to anywhere by the mile. So you couldn't get any better deal. That would tend to make it more expensive to travel by train. Say you extend that to planes. Say also that you extend that to automakers.

There are legal monopolies like telephone lines, electric companies and the railroads. But all of these monopolies (called franchises in modern parlance) pay franchise fees and agree to be regulated by the states through public service commission and the federal government via interstate commerce commission, etc.

Hope that answers your question.