Deck 38: Antitrust

Question 1

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

Answer 1

True

Question 2

The Clayton Act prohibits anti-competitive mergers.

Answer 2

True

Question 3

Reciprocal dealing is a type of vertical cooperative strategy.

Answer 3

True

Question 4

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) All the above.

Question 5

Antitrust laws in the United States remained constant through most of the 1900s.

Question 6

The only defense available to a defendant in a per se violation is that the violation never occurred.

Question 7

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

Question 8

For the first 70 years after the Sherman Act was enacted,judges were reluctant to enforce it since scholars and economic experts believed the law was a violation of the Constitution's Commerce Clause.

Question 9

The Clayton Act was enacted:

A) because the courts were too strict in their enforcement of the Sherman Act.
B) to clarify the provisions of the Sherman Act.
C) to eliminate price discrimination that reduced competition.
D) All the above.

Question 10

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

Question 11

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

Question 12

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

Question 13

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 14

The most accurate statement about the Robinson-Patman Act is:

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D) It was repealed by Congress in 1998.

Question 15

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 16

Horizontal cooperative strategies would include all EXCEPT:

A) market division.
B) price fixing.
C) reciprocal dealing.
D) bid-rigging.

Question 17

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

Question 18

The Chicago School's position on antitrust legislation would be to ask:

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

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

Question 20

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

Question 21

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) NLRA.

Question 22

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 23

Such an agreement is:

A) a per se violation of antitrust law.
B) subject to the rule of reason test to determine if it violates antitrust law.
C) not governed by antitrust law since educational institutions are exempt from this area of law.
D) subject to state regulations but not to the Justice Department.

Question 24

When the per se standard applies,the plaintiff:

A) needs only to prove the existence of the conduct.
B) must prove that the activity was an unreasonable restraint of trade.
C) must show that there was an anti-competitive impact.
D) None of the above.

Question 25

The traditional formula for determining damages for a violation of the Robinson-Patman Act was to:

A) calculate the estimated amount of lost profits.
B) determine the difference between the two prices and multiply the difference by the number of units purchased.
C) allow a jury to determine the amount of punitive damages without using any particular formula.
D) All the above.

Question 26

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 27

In the case of United States v.Waste Management,Inc.,the U.S.Court of Appeals had to consider whether a merger of two large trash removal services was illegal.The merger created a company that controlled nearly 50 percent of the Dallas,Texas regional market.The court ruled that:

A) such merger created a presumption of illegality.
B) the merger was not illegal since it did not substantially lessen competition in the relevant market.
C) Both of the above are correct.
D) None of the above.

Question 28

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 29

What law prohibits mergers that are anti-competitive?

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

Question 30

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) None of the above is correct.

Question 31

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 32

The U.S.Attorney General brought a Sherman Act lawsuit against competitors in the widget market.The Attorney General alleged that these companies agreed to charge $20 for widgets.Which of the following defenses may apply?

A) That the $20 price was fair.
B) That the $20 price was lower than the price before the agreement.
C) That the businesses did not agree to charge $20 for widgets.
D) That the competitors would have gone out of business without the agreement.

Question 33

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 34

This agreement violates the:

A) Sherman Act.
B) Clayton Act.
C) Robinson-Patman Act.
D) None of the above.

Question 35

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 discovered that a national chain,a competitor of Salley's,buys the pen at $.20 for 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 unless Pat's Pen Co. can justify the price differential.
D) Salley's Stationery will win since price discrimination is a per se violation with no real defenses.

Question 36

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 competition at any stage of the marketing channel.

Question 37

Cooperative strategies include all EXCEPT:

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

Question 38

A marketing representative who is tempted to engage in price-fixing due to heavy competition and similar prices for competitors' products should:

A) emphasize factors of her product that do not involve price.
B) emphasize service, reliability, and other factors of her company.
C) understand the serious criminal and civil penalties of engaging in price-fixing.
D) All the above.

Question 39

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 40

In the Fears v.Wilhelmina Model Agency,Inc.case,the court held:

A) parallel business behavior conclusively establishes agreement sufficient to constitute a Sherman Act offense.
B) in this case the defendants did not possess a common rational motive to conspire.
C) plaintiffs offering parallel conduct as evidence of an antitrust conspiracy must demonstrate additional circumstances in order to infer a conspiracy.
D) plaintiffs did not need to demonstrate "plus factors" in this case since the defendants' conduct was egregious.

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? What factors would a court consider in deciding the case?

Question 42

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

Question 43

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

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.

Question 46

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.