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The Federal Trade Commission Act Research Paper

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Updated: Jul 5th, 2019


There are several policies that have been critical to the advancement of a favorable trading environment in the United States. A lot of things surround the policy right from its formulation to its implementation, thereby affecting how the policy plays out in meeting its intended objectives.

In order to understand the nature of policy and its its implications on the economy, one must be able to trace the policy goals, which are reflected in the activities that are undertaken as part of the implementation of the policy. This is what is referred to as public policy analysis. As one of the leading countries in international commerce, the regulation of the trading environment in the USA was critical.

Therefore, it is worthwhile to say that the country needs to ensure that there is a stable internal business environment, which paves way for external competitiveness in trade. One of the areas that have been given attention for a long time is the regulation of trade in the United States. This has been done through the development and enforcement of trade policies that have governed commerce till the contemporary times.

The Federal Trade Commission Act is considered to be one of the critical legislations that have aided to regulate commerce in the United States. As a policy, the Federal Trade Commission Act has undergone several amendments in the course of its applicability. The changes that have been made to the Act have been geared towards making it efficient to capture the emerging needs and demands in trade in the United States and beyond.

This paper explores the Federal Trade Commission Act of the United States. The paper carries out an analytical evaluation of the act in order to develop a bigger picture of the policy and how it has been relevant in the country. The paper carries both a description and analysis of the Act. The paper begins by bringing out the history of the Act. This is followed by an analysis and evaluation of the key areas of the Act.

History of the Act

The Federal Trade Commission Act can be traced back to the early years of the 20th century. These are the times when the United States, under the leadership of the then President Woodrow Wilson, was working hard to gain a strong economic footing. The Act was formulated in the year 1914, and through amendments it has remained vital in the country.

The Act became a law in the same year in which it was formulated. The Act spearheaded the establishment of the Federal Trade Commission. Prior to the establishment of this body, there was a lot of fragmentation of trading activities that denoted the absence of order, which is vital for molding business for the benefit of the country.

The Federal Trade Commission was meant to be a body to help in moderating the trading environment in the country. The issue trusts in the US economy had resulted in a lot of unethical practices, particularly the large business corporations in the United States. Therefore, a political intervention was highly desired to help put a hold to the issue of trusts in order to promote a fair trading environment in the country.

Under the authority of the United States Congress, the commission was to help issue orders to make the large companies to desist from advancing business practices that were deemed unfair to other business companies in the United States. Also, the Act was meant to shield consumers from exploitation by the big companies. The exploitation emanated from the engagement of the companies in deceptive activities (Herbert, 2010, p. 871).

It is critical to observe that the Federal Trade Commission Act has resulted in the formulation of other business driven statutes in order to enforce a number of business regulations. The statutes are formulated by the United States Congress and grouped under the Code of Federal Regulations. This legislation was developed basing on the Sheraman Act.

The Sherman Act is one of the trade regulation policies of the United States that restricted the anticompetitive conduct by business corporations in the United States. As of today, it has been observed that the FTC Act has given FTC powers to enforce numerous consumer protection and antitrust laws in the United States. The FTC is still undergoing changes as its operations broaden in order to capture the issues that emerge in the contemporary market.

Prescription of the Act

Understanding the FTC Act

According to Northrup (2003, p. 179), the operation of the FTC Act is strongly founded in the operations of the Federal Trade Commission. The Federal Trade Commission is headed by a chairperson and commissioners. Both the commissioners and the chairperson of the FTC are appointed by the US president with the approval of the US Senate. The commission is comprised of five commissioners.

The observation that the FTC Act was to eliminate unfair competition implies that it encompassed business torts, rather than the complete suppression of uncompetitive business practices in the US business environment. Business torts refer to the embrace of deceptive practices and conduct that adds a burden to the consumers (Blaisdell, 2008, p. 37). Large firms in the US were accused of adopting a tendency of monopolizing the business environment.

It should also noted that the act did not only focus on the larger firms that tend to monopolize business, but also the smaller companies that advance their operations by way of riding freely on the investments that are made by other firms in the market. Under the Act, the FTC has powers to implement the provisions of the Clayton Act. The Clayton Act is one of the most comprehensive policies on regulation of competition.

The Clayton Act has provisions within it, which bars the development of anticompetitive agreements, price discrimination, mergers, and exclusive dealings (Herbert, 2010, p. 872). In its operation, as prescribed by the Act, the FTC is bestowed with the mandate of scrutinizing the business corporations in the United States, in order to ensure that they comply with the antitrust laws. The commission also intervenes in cases where business activities show signs of affecting consumers (Northrup, 2003, p. 178).

Blaisdell (2008, p. 259) ascertained that the FTC has the explicit statutory powers to put the antitrust provision into practice. However, these powers are founded on the Sherman Act. Therefore, the importance of integrating the diverse business Acts is explicated here, where the limitations of a given company to enforce certain laws is drawn away by the provisions in a different Act.

The issue of deception features in all kinds of business practices, like marketing and advertisement. The enforcement of the FTC Act has resulted in a substantial number of litigations with several corporations. These cases come out of the pressures that are put on companies by the virtue of the enforcement of the laws on unfair competition and deceptive business practices.

It should be noted that the Act has been prone to several amendments, out of the need to make it workable and the need to eliminate certain components that make it inefficient. The elaboration of terms has also been a critical factor in the changes that have been made to the Act. The policy goal of the act has been to promote ethical practices in the market by curtailing false advertisements by business firms and the fixing of exploitative prices on goods and services (Northrup, 2003, p. 179).

The FTC Act and market failure

There have been a lot of issues surrounding the enforcement of the FTC Act. Most of the issues have been noted by the Commission. They revolve around the question of elimination deception and policy advancement on the elimination of deceptive practices by firms.

The issue of liberal markets further complicates the applicability of the anticompetitive provisions in the Act. The FTC has noted that there is a strong and integrated link between advertising and the establishment of free markets. Therefore, the mere fact that the act advances a policy that restricts the nature of advertising by firms through the anti-deception provision is argued to be against the principle of market liberalization.

Most marketing theories opine that consumers have a right to get any information concerning the goods or services that are offered by any given company in the market. The reason behind this argument is that the more information that is received by customers concerning a give product or a service, the more they are bound to make informed choices of products in the market. The purchasing choices, which are made by the consumers, are often bound to satisfy their needs.

However, several issues surround the process of advertising, which is the reason why the FTC Act is critical in the prevention of market failure. Advertising impacts negatively on market performance when firms utilize it to pass fraudulent or deceptive messages that induce reasonable customers to peg their purchasing choices on the fraudulent messages (Azcuenaga, 1997, p. 1).

The operation of the free market is a complex affair, and so is the need for policies to help instilling controls to the practices within the market to encourage the sustenance of the market. The United States embraces a free market system. However, this does not imply the lack of control in marketing procedures and practices. The controls are critical in that they help in the protection of both the consumers and business firms from any misdeeds in market operations.

One of the key elements in free market operation is the ability of the market to generate and subsequently process the large volumes of information, which is featured in the operations of the modern market. The large volumes of information in the modern market center on output and costs of production, the interconnection between producers and suppliers and the incomes and tastes of consumers in the market.

The ability of any market to promote the effective discharge and utilization of market information resonates from the availability of decentralized decision making channels. Decentralization of marketing practices is possible in the presence of polices that promote the synthesis of market information and the promotion of rational choices by the consumers. The FTC Act is one of the policy pillars behind the enhancement of fair practices in the liberalized US markets (Azcuenaga, 1997, p. 1).

Implementation of the FTC Act

The Federal Trade Commerce Act was implemented right from the time it was developed. The agency that has been charged with the responsibility of implementing the Act is the Federal Trade Commission. With several provisions, the implementation of the provisions in the Act has been taking place on a continuous basis.

Whenever there is an itchy issue, the need for the amendment of the provisions in the Act is raised. It is vital to observe that the implementation of the Act is monitored by the US Senate, which is one of the bodies that scrutinizes and vets the proposed amendments to the Act.

Several issues have emerged in the course of the enforcement of the Act. Most of these issues come from the new developments in the business realm, which requires the Federal Trade Commission to revisit the provisions in the Act. This forces the commission to induce changes and even in some cases induce a number of Caps in the main Act. An example is the CAN-SPAM Act (Definitions and implementation under the CAN-SPAM Act, 2008, p. 1).

Impact of FTC Act on business and society

The impacts of any given policy are pegged on the goals and objectives of the policy. The Federal Trade Commission Act is one of the most vocal trade policies in the United States since most of its goals have been met. It can, therefore, be said that the FTC Act has had a great impact in as far as the support of a fair trading environment that is considerate of the consumer is concerned.

One of the key goals of the FTC Act has been to promote a fair trustworthy trading environment. Through the implementation of Section 5, which largely touches on the regulatory mechanisms of the banking corporations in the United States, the amount of trust in the banking institutions in the United States has risen.

It is important to highlight the relevance of this development to the economy of the United States. The confidence in the banking institutions plays the role of attracting investment in the economy, thereby promoting economic growth and development. The confidence only comes when citizens, as well as other corporations are assured of favorable terms of interests that are well rationalized to reflect the state of the economy.

The FTC, under the policy of fair competition and the protection of consumers, ensures that the rates of interests that are set by banking institutions are reached by factoring in all the possible risks in the economy. An example that comes up here is the manner in which the FTC has captured the changing trends in consumer trends amidst the emergence of the social media as one of the tools of marketing (Peter, 2011, p. 165).

Scott (1997, p. 963) observed that the other profound impact of the policy is that it has aided in creating an environment where the consumers are highly enlightened on their rights in the market. Consumer protection has been one of the main roosts of the policy. The approach that is utilized by the Federal Trade Commission makes the policy goals more clear to the consumers.

It has been noted that the Commission takes an active approach, which applauds the issues within the policy to the consumers, as well as business corporations in the United States. Even with the changes in the international market operations, consumers in the United States are assured of protection from exploitation.

Policy Analysis

As mentioned earlier, the main goal of the Federal Trade Commission Act has been to promote a fair competitive business environment in the United States. One main question that ought to be posed here is whether there is a fairly competitive business environment in the United States.

This is the basis on which the workability of the FTC Act can be determined. Just like other trading policies, it can be argued that the FTC Act has remained to be critical in the regulation of the US markets, having prevailed for about one hundred years. Its long existence can be taken as an indicator of the fulfillment of the goals that guided its development, proving its workability. It should be noted that the Act has existed from the year 1914 to date.

The analysis of the US markets since that time up to today denotes great changes to the US markets. Therefore, the implication is that the Act has spearheaded the growth of consumer awareness and the subsequent enhancement of ethical standards in market practices, which has resulted in fair competition in the market. Nonetheless, it is vital to note that the FTC has often been subjected to criticisms by business corporations, which accuse the Commission for narrowing their competitive space (Northrup, 2003, p, 180).

Strengths and Weaknesses of the The Trade Commission Act

One of the vital areas of the policy has been the development of policies that govern the competitive operation of different business institutions in the US. Among these institutions are banks. The main question is whether the regulation of competitive practices in the US banking sector has been attained.

The competitive environment in the banking sector is often measured by the amount of trust of the customers in the services and information that is offered by the banks. Under Section 5 of the FTC Act, it is apparent that the Federal Trade Commission developed standards that are used for guiding the activities of banks, thereby encouraging the suppression of deceptive practices by banks.

The policy on banking, as brought about in the FTC Act, has forced banks to disclose their activities; for instance the parameters that are utilized in the calculation of interests. This is referred as compliance risk evaluation, where the release of all products and services of the banks are subjected to the policy to ensure that they are not deceptive to the consumers (Salinger, 2005, p. 312).

It can be said with certainty that the level confidence of customers in the US banking sector has been highly promoted by the virtue of the functioning of the FTC. This is considered to be one of the strengths of the FTC Act. The FTC has been given powers to issue ‘cease-and-desist’ orders on any institution that fails to comply with the regulations on deception and fair competition.

The Federal Trade Commission has also been given powers to implement policies and regulations that feature in a substantial number of other legislations (Salinger, 2005, p. 312). However, the weakness of the policy can be traced in the recent economic developments, where the state gives preference to a number of business organizations.

In such a situation, the government backs the operations of a number of economic institutions that are considered to be critical in the economy. An example that can be given here is the application of the ‘too big to fail’ slogan amidst the impacts of the recent global economic recession. Under such circumstances, the regulatory power of the Act was demeaned (Devlin, 2011, p. 560).

One of the main strengths of policies is the nature of their expansiveness, which serves as a determination of the amount of influence that it has on the society. There are arguments that the FTC functions can be equated to a social movement. The Commission termed merges as sources of problems in business and by extension a problem in the society.

Having taken a vibrant approach in meeting the goals that it was intended to meet, it is easy for the activities of the Commission to be recognized. The Commission set a clear political agenda that was critical in the enforcement of the economic policy goals, which are being pursued (Luchansky & Gerber, 1993, p. 217).

Recommendations for future policy makers

Implementation of policies is termed as a complex affair since it requires both the direct and indirect participation of different stakeholders, including the agencies that are targeted by the policy measures. As has been observed in the enforcement of the Federal Trade Commission Act, there is need to pay attention to certain critical areas within the cycle of implementing a policy.

  • There is need to publicize a policy prior to its enforcement. This is a critical step since it helps in ensuring that all the contents of the policy are understood by the society. There was a problem of definition and use of the terms in the FTC Act, leading to a number of disputes. It is important to clearly define the terms and to simplify the specific statutes within a given policy in order to avoid misunderstandings, which often interferes with the effective enforcement of policy.
  • The second point that should be given attention by policy makers concerns the broadening of the scope of the policy. This entails the opening of the scope of the policy so that it effectively links up and gets support from other policies. By doing so, the policy gets a stronger supportive ground, making it easy for policy enforcers to attain the goals of the policy in the society. The FTC Act was easily intertwined with other policies and even allowed to borrow from other policies in order to strengthen its enforcement ground.
  • The other critical point in the development and enforcement of policy is that the policy makers are required to give room for making changes to the policy. This is a desired step as it aids in the absorption of changes in the policy, which are critical to the consideration of the emerging factors in the environment in which the policy is being enforced. One of the observations made in the analysis of the FTC Act is that the Act has been subjected to numerous amendments in order to make it responsive to the emergent situations in the US market.


Azcuenaga, M. L. (1997). The role of advertising and advertising regulation in the free Market. Web.

Blaisdell, T. C. (2008). The Federal Trade Commission: An experiment in the control of business. Clark, NJ: Lawbook Exchange.

Definitions and implementation under the CAN-SPAM Act. (2008). Federal Information & News Dispatch, Inc. Web.

Devlin, A. (2011). Antitrust in an era of market failure. Harvard Journal of Law & Public Policy, 33(2), 560-66.

Herbert, H. (2010). The Federal Trade Commission and the Sherman Act. Florida Law Review, 62(4), 871.

Luchansky, B., & Gerber, J. (1993). Constructing state autonomy: The Federal Trade Commission and the Celler-Kefauver Act. Sociological Perspectives, 36(3), 217-240.

Northrup, C. C. (2003). The American economy: A historical encyclopedia. Santa Barbara, CA: ABC-CLIO.

Peter, T. (2011). Subverting new media for profit: how online social media ‘black markets’ violate section 5 of the Federal Trade Commission Act. Hastings Science & Technology Law Journal, 3(1), 165.

Salinger, L. M. (2005). Encyclopedia of white-collar & corporate crime. Thousand Oaks, CA: Sage Publications.

Scott, C. (1997). Technology and competition come to telecommunications: Re-examining exemptions to the Federal Trade Commission Act. Administrative Law Review, 49(4), 963-970.

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