SAN LORENZO, CA - FEBRUARY 20: A Wal-Mart truck sits outside of a Wal-Mart store on February 20, 2014 in San Lorenzo, California. Wal-Mart reporterd a 21 percent decline in fourth quarter earnings with profits of $4.4 billion or $1.36 a share compared to $5.6 billion, or $1.67 per share one year ago. (Photo by Justin Sullivan/Getty Images)

Our founding fathers knew that innovation came from the freedom to pursue dreams and ideas in a competitive environment. In order to protect competition in our free market system Congress passed “The Sherman Anti-Trust Act” in 1890.

Senator George Hoar of Massachusetts, another author of the Sherman act, said the following:

"... [a person] who merely by superior skill and the whole business because nobody could do it as well as he could was not a monopolist..(but was if) it involved something like the use of means which made it impossible for other persons to engage in fair competition."

Standard Oil Company and The Sherman Anti-Trust Act

The US Supreme Court ruled that the Standard Oil Company and The American Tobacco Company were both in violation of the Sherman Anti-Trust Act on May 15, 1911.

Both had managed to corner the market in their respective industries and were bringing their power to bear on weaker competitors. The Supreme Court ruled that the companies should be broken up into several entities that would not have such a powerful advantage in smaller markets. They were monopolies and had to be broken up. But Major League Baseball, the NFL and others are definitely monopolies that are allowed to operate with the blessings of Congress.

Protecting Consumers Against Market Failure

The U.S. Supreme Court explained how the Anti-Trust Act works in their ruling of Spectrum Sports, Inc. v. McQuillan 506 U.S. 447 (1993),

"The purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. The law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself. This focus of U.S. competition law, on protection of competition rather than competitors, is not necessarily the only possible focus or purpose of competition law. For example, it has also been said that competition law in the European Union (EU) tends to protect the competitors in the marketplace, even at the expense of market efficiencies and consumers."

Competition In Today’s Markets

Circuit City is gone, but Best Buy is still kicking. Linens and Things bit the dust but Bed, Bath and Beyond is still giving folks a good nights sleep. Border’s Books is history; but history books are still alive and well at Barnes and Nobel.

Free markets work because customers have the right to shop where they feel they are going to get what’s important to them. While fast food restaurants all have differing menu items the inner working are very similar.

There’s not a lot of difference checking out of Walmart versus checking out of Target. But there is a vast difference between the two stores and how they compete for customers.

Each has found products consumers want and are willing to pay for but both found that the form of check out they both use is the most efficient to date.

Stores like Macy’s, JC Penny’s and The Gap have checkouts in various departments within the store. That works best for them. Competition spawns innovation and innovation invites imitation of efficiency.

Some Final Thoughts

Competition creates an environment where people and companies can excel. Build a better mousetrap and the world will beat a path to your door if they know about your mousetrap. Others will take your mousetrap idea and try to improve on it. That’s how cars ended up with heated cup holders. It’s giving people what they want even if they didn’t think of it first.