Deck 23: Antitrust

Question 1

Under modern antitrust law analysis, a company with a market share between 70 and 90 percent has a monopoly.

Answer 1

False

Question 2

Adherents of the Post Chicago School use an antitrust analysis based solely on whether competition has been harmed.

Answer 2

False

Question 3

Which of the following is the most accurate statement about the Robinson-Patman Act?

A)It has rarely been enforced in recent years.
B)The U.S. government has stepped up its enforcement during the last decade.
C)It has been declared unconstitutional.
D)It was repealed by Congress in 1998.

Answer 3

A

Question 4

The Sherman Act was designed to prevent extreme concentrations of economic power.

Question 5

Gary, Louise, and Brian, who own competing gas stations in town, happen to see each other at a restaurant one morning and have breakfast together. While talking, they decide to set their gas prices at the same amount. They have committed an illegal act only if the agreed price is unfair to consumers.

Question 6

Which of the following is a vertical cooperative strategy?

A)market division
B)price-fixing
C)reciprocal dealing
D)joint venture

Question 7

Companies with substantial assets must notify the FTC before consummating a merger.

Question 8

The Clayton Act prohibits anticompetitive mergers.

Question 9

Both the Justice Department and the Federal Trade Commission have the authority to enforce antitrust laws.

Question 10

Which of the following cases involved price-fixing?

A)Coalition for a Level Playing Field, L.L.C. , v. Autozone, Inc.
B)United States v. Apple, Inc.
C)United States v. Waste Management, Inc.
D)New York v. Actavis PLC

Question 11

Reciprocal dealing is a type of vertical cooperative strategy.

Question 12

Both per se and rule of reason violations of the Sherman Act are automatically illegal.

Question 13

Per se violations are subject to both civil and criminal penalties.

Question 14

Adherents of the Post Chicago School believe that competition alone may not be enough to protect consumers.

Question 15

If a company has violated antitrust laws,

A)the Justice Department can initiate only noncriminal charges against the violator.
B)the Federal Trade Commission may file criminal proceedings against the violator.
C)any private person or company that has been harmed by the violator can file a lawsuit to recover damages.
D)both the Justice Department and the Federal Trade Commission can bring criminal proceedings.

Question 16

A vertical merger involves companies at different stages of the production process.

Question 17

For the first 70 years after the Sherman Act was enacted, most scholars and judges took the view that large concentrations of economic power were suspect even if they had no obvious impact on competition itself.

Question 18

An advocate of the Chicago School's position on antitrust legislation would ask which of the following questions?

A)"Has a competitor been harmed?"
B)"Has competition been harmed?"
C)"Will competitors be allowed to freely enter the market?"
D)"Will interstate commerce be affected?"

Question 19

The FTC blocked the merger of Staples, Inc. and Office Depot because they controlled a large percentage of the national market for office supplies.

Question 20

Predatory pricing occurs when a company lowers its prices below cost to drive competitors out of business.

Question 21

Assume that three automobile manufacturers all merged into one car company. Such a merger would be a

A)vertical merger.
B)vertical cooperative arrangement merger.
C)horizontal merger.
D)intracompetitive merger.

Question 22

A monopoly is illegal

A)under any circumstances, under Section 2 of the Sherman Act.
B)only if it is gained or maintained by using wrongful tactics.
C)if you have greater than 50 percent of market share.
D)any time there are no interchangeable products.

Question 23

What is the Justice Department's current position relative to reciprocal dealing agreements?

A)The Justice Department actively enforces this illegal activity.
B)The Justice Department is only concerned about these agreements if a large, national company is involved.
C)The Justice Department only gets involved if such an agreement will foreclose a significant share of the market and if the participants agreed not to buy from other competitors.
D)The Justice Department only gets involved if such an agreement is "decidedly uneven," meaning that one company benefits significantly more than the other.

Question 24

Two universities located within 30 miles of each other agree to allocate their customers so as to help them both. The two schools draw a line down a map, and each university agrees to accept students only on their side of the line. What type of horizontal cooperative strategy does this represent?

A)market division
B)refusal to deal
C)reciprocal dealing
D)joint venture

Question 25

Exclusive dealing contracts, if they have an anticompetitive effect, are illegal under the

A)Sherman Act only.
B)Clayton Act only,
C)Sherman Act and Clayton Act.
D)Sherman Act, Clayton Act, and Robinson-Patman Act.

Question 26

Gorhan Construction, Brighton Bros., and Tirenn Construction agreed that on three upcoming projects, Gorhan would bid lowest on one, Brighton would submit the lowest bid on the second project, and Tirenn would submit the lowest bid on the third project. In this way, they would each be assured of work for the upcoming season. This behavior

A)is legal and acceptable practice in the construction industry to spread work more evenly.
B)is a per se violation of the Sherman Act.
C)is a rule of reason violation of the Sherman Act.
D)violates ethical, but not legal, standards.

Question 27

Explain horizontal price-fixing and vertical minimum and maximum price-fixing. Discuss their status under antitrust laws.

Question 28

A vertical allocation of customers or territory

A)is a per se violation of Section 1 of the Sherman Act.
B)is a rule of reason violation of the Sherman Act.
C)is not a violation of the Sherman Act.
D)is illegal if it adversely affects one party over the other.

Question 29

What law prohibits mergers that are anticompetitive?

A)Sherman Act
B)Clayton Act
C)Robinson-Patman Act
D)Radmon Act

Question 30

Ed was an independent owner of a chain of TV stores. He successfully got customers into his store by cutting his prices on widely advertised name-brand products in order to sell other products for which he received a bigger profit. When the manufacturers of three of the name-brand products discovered Ed's actions, they agreed secretly to stop selling him their TVs. The three manufacturers

A)are doing nothing illegal, as they did not get Ed to agree to anything.
B)are free to agree not to deal with Ed since the public can go elsewhere and will not be hurt economically.
C)can choose either as a group to deal or not to deal with any retailer they want.
D)are engaged in a rule of reason violation of the antitrust laws if their action harms competition.

Question 31

Pat's Pen Co. manufacturers and sells an inexpensive ball-point pen. Salley's Stationery purchases the pens for $.25 each in quantities of 1,000. Salley's discovers that a national chain, a competitor of Salley's, buys the pen at $.20 each for quantities of 1,000. If Salley's Stationery sues Pat's Pen Co. for price discrimination

A)Pat's Pen Co. will win if it can prove that it has been selling to the national chain continuously at the cheaper rate.
B)Pat's Pen Co. will win if it can prove that it did not intend to economically harm Salley's Stationery.
C)Salley's Stationery will win if it can prove price discrimination occurred and that it lessened competition.
D)Salley's Stationery will win since price discrimination is a per se violation with no real defenses.

Question 32

What type of collusion does the Supreme Court refer to as "the supreme evil of antitrust"?

A)price-fixing
B)reciprocal dealing
C)price discrimination
D)vertical mergers

Question 33

A major motion picture distributor offers to provide a television station with three very popular, desirable films. However, as part of the agreement, the distributor requires that the television station also purchase four films that are not very desirable. This type of arrangement is called a

A)reciprocal dealing agreement.
B)reverter arrangement.
C)joint custody arrangement.
D)tying arrangement.

Question 34

A refusal to deal

A)is a right to decide with whom to do or not to do business and cannot be legally limited.
B)is a rule of reason violation of the Sherman Act and is illegal if it harms competition.
C)is an agreement in which a buyer refuses to purchase goods from a supplier unless the supplier also purchases items from the buyer.
D)occurs when a manager refuses to recognize that price-fixing is a problem.

Question 35

Under which circumstance is it legal to charge a lower price to a particular buyer?

A)if the items are the same
B)if the price discrimination lessens competition
C)if the costs of serving that particular buyer are lower
D)All of these are correct.

Question 36

Cooperative strategies include all EXCEPT

A)horizontal agreements.
B)vertical agreements.
C)mergers.
D)spin-offs.

Question 37

In vertical price-fixing, the manufacturer sets the

A)minimum prices that retailers may charge.
B)maximum prices that retailers may charge.
C)number of items a retailer may sell at a specific price.
D)date by which a retailer must sell products.

Question 38

If competitors act in concert but without an explicit agreement, they are engaged in

A)a tying arrangement.
B)monopolization.
C)reciprocal dealing.
D)conscious parallelism.

Question 39

An automatic breach of antitrust laws is called a

A)refusal to deal.
B)per se violation.
C)conscious parallel.
D)rule of reason violation.

Question 40

John D. Rockefeller's oil business was the main reason which legislation was enacted?

A)Sherman Act
B)Robinson-Patman Act
C)Clayton Act
D)Chicago School Act

Question 41

The chain of Mega Hardware stores agreed with Lock Tight Manufacturing not to carry any brand of locks and door handles other than those manufactured by Lock Tight. Mighty Lock threatened to sue for antitrust violations. On what basis and under what statute(s)would Mighty Lock sue?

Question 42

Discuss when monopoly power is not a violation of Section 2 of the Sherman Act.

Question 43

Violations of antitrust law are either per se violations or rule of reason violations. What are the differences between these two types of violations? Give examples of each.

Question 44

Explain the overall purposes of the Sherman Antitrust Act, the Clayton Act, and the Robinson-Patman Act. How do each of these Acts relate to each other?

Question 45

Smalltown has two family-owned hardware stores that have been in business for years. Major Hardware decides that Smalltown would be a good place to build one of its superstores. Major opens, advertising unbelievably low prices; in fact, at below cost. Because Major owns stores nationally, it is able to keep prices extremely low until both of the family-owned stores have to go out of business because they cannot compete. After Major is the only hardware store in town, it raises its prices enough to make up for its former losses and to make some additional profit. Discuss this behavior in relation to antitrust law.