A perfectly competitive market is a market where there are many sellers and buyers for a product. In a competitive market price is not established by a single seller, but is decided by supply and demand (Edwin, 673). Competition is necessary in an economy because it helps control production, price, and it helps in motivating companies to create new and better products. Unlike a competitive market, a monopoly is a market structure where there is only one seller of a product. In a monopoly, price is determined by demand only (Edwin, 672). This causes problems because a monopoly can influence prices greatly and prices can increase for a company wanting to just gain more profits. Production in a monopoly is below the demand curve, which enables the company to charge higher prices for their products (Edwin, 447). With higher prices and less production, it is easy to see why a monopoly is less efficient then other market structures and why the government needs to regulate them in order to have a successful economy.
In 1890 the government established the Sherman Anti-Trust Act. This act was passed by congress in order to prevent monopolies from controlling the economy. The Sherman Anti-Trust Act became a law on July 20, 1890. This law consists of two separate parts. The first part of the Sherman Act prohibits any action or contract that causes a restraint of commerce or trade among all states and foreign nations. The second part of the Sherman Act states that abuse or misuse of the market to gain a monopoly or uphold one will be illegal (Poole, 1). Actions that would fall into this category would be things such as prices war, which is where a company lowers a price below the cost level in order to gain market control, and contracts between suppliers or others that make it impossible for others to compete. .
Once the Sherman Act was passed, it success over the first twenty years was not as successful as the government had hoped for.