The Federal Trade Commission (FTC) is a bipartisan federal agency that examines mergers and acquisitions and unfair business practices that could lessen competition and harm for consumers.
The FTC develops rules and investigates and sues companies that violate laws, as well as conducts research and develops guidelines for businesses.
Let’s take a closer look at what the Federal Trade Commission (FTC) is and how it works.
Definition of the Federal Trade Commission
The FTC is a federal agency that has a dual mission of promoting competition and protecting consumers and is tasked with a number of responsibilities.
In consumer protection, the FTC conducts investigations, sues companies that violate the law, and develops rules to ensure consumers' and businesses' rights are not violated. It also collects reports on data security and deceptive advertising and works with law enforcement around the world to ensure a safe marketplace for consumers.
In promoting competition, the FTC enforces antitrust laws to ensure markets are open and free. Antitrust law focuses on anticompetitive mergers and business practices that could harm consumers. Some examples of business practices that would be of antitrust concern are higher prices, lower quality, fewer choices, or reduced rates of innovation.
The FTC can challenge potential mergers or anticompetitive business practices in court if it believes they are anti-competitive and harmful to consumers.
Some examples of results from court cases that involved the FTC include:
- Facebook violated an FTC order by deceiving users about their ability to control the privacy of their personal data. The company was ordered to pay a $5 billion penalty.
- Vtech, the electronic toymaker, violated the Children’s Online Privacy Protection Act (COPPA) and was fined $650,000.
- Reckitt Benckiser violated antitrust laws through a deceptive scheme to stop lower-priced generic competition with its branded drug Suboxone. They paid a $50 million penalty.
How the Federal Trade Commission Works
The FTC was created in 1914 by President Woodrow Wilson with the goal of protecting consumers and promoting competition.
Before the FTC, the Bureau of Corporations was the agency that gathered information on companies to see if they were acting in the public interest.
Over the years, Congress has passed additional laws to give the FTC more agency to police anticompetitive practices. The FTC now administers over 70 laws and regulations including the Telemarketing Sale Rule, Identity Theft Act, Fair Credit Reporting Act, and Clayton Act.
The Federal Trade Commission researches and investigates topics such as:
- Consumer finance
- Mergers and competition
- Mobile technology
- Do Not Call Registry
- Truth in advertising
- Consumer privacy and security
- Identity theft
- Military consumer protection
- Mobile cramming
The Truth in Lending Act, for example, says advertisements cannot be misleading and must be truthful.
If the FTC finds a case of fraud it will file actions in federal district court for immediate and permanent orders to try to stop scams, prevent future scams, freeze the fraudsters' assets, and get compensation for the victims.
The FTC takes a careful look at false advertising claims that can affect a consumer’s health or finances, such as claims about food, over-the-counter drugs, dietary supplements, alcohol, tobacco, and high-tech products.
The FTC’s Consumer Guides
The FTC also issues guides to help ensure consumers are protected in new industries.
For example, Americans are increasingly interested in environmentally friendly “green” products, so companies have ramped up “green” marketing about the environmental benefits for their products.
The FTC designed Green Guides to help marketers avoid making environmental claims that mislead consumers. For example, it offers guidance on how marketers can qualify and substantiate their claims that their products are “renewable” or provide a “carbon offset.”
Alternatives to the Federal Trade Commission
Along with the FTC, the Department of Justice (DOJ) also has a role in protecting consumers by taking regulatory action. Both agencies, for example, share jurisdiction over merger reviews. They both review most proposed transactions that affect commerce in the United States that are over $92 million.
If either the FTC or the DOJ believes a merger will “substantially lessen competition,” it can take legal action to block it. Reviews are assigned to one agency, depending on which agency has more expertise in the industry.
During the preliminary review, parties must wait 30 days before closing their deal. Based on what the agency finds, it could let the deal go through or, if the initial review raises competition concerns, it could extend the review and ask for more information.
Beyond evaluating merges, the FTC and DOJ issue research reports or guidelines on mergers together. For example, they recently revamped the Vertical Merger Guidelines, which outline how federal antitrust agencies evaluate the competitive impact of vertical mergers.
Another federal agency charged with protecting consumer rights is the Consumer Financial Protection Bureau, which coordinates with the FTC to ensure their regulatory efforts don’t overlap.
- The dual mission of the FTC is to promote competition and protect consumers.
- The FTC investigates anticompetitive business practices that lead to higher prices, lower quality products, and fewer consumer choices.
- The FTC investigates deceptive advertising and scams to protect consumers.
- The FTC and DOJ work together to evaluate mergers and provide guidance on mergers that may affect competition.