Deck 16: Antitrust Policy and Business Regulation

Question 1

When two firms agree to collude to establish a price and eliminate price competition, it is called:

A) oligopoly.
B) market sharing.
C) output-shading.
D) price-fixing.

Answer 1

price-fixing.

Question 2

An act that sought to prohibit firms from conspiring to restrain trade was the:

A) Federal Trade Commission Act.
B) Federal Reserve Act.
C) Grant Act.
D) Sherman Antitrust Act.

Answer 2

Sherman Antitrust Act.

Question 3

Price-fixing is outlawed by the:

A) Sherman Antitrust Act.
B) Clayton Act.
C) Federal Trade Commission Act.
D) Celler-Kefauver Act.

Answer 3

Sherman Antitrust Act.

Question 4

Antitrust policy refers to government:

A) attempts to prevent the acquisition of monopoly power.
B) attempts to encourage the exercise of monopoly power.
C) encouragement of collusion in the marketplace.
D) attempts to limit private enterprise.

Question 5

In the Brown Shoe case, which involved a merger, the Supreme Court:

A) allowed the merger, even though it felt the resulting firm would be able to undersell its competitors.
B) allowed the merger, because lower shoe prices would have benefited consumers.
C) chose to protect competition and blocked the merger.
D) refused to hear the case and threw it out without issuing any judgment in the matter.

Question 6

The rule of reason was first considered in the:

A) Reebok Shoe case.
B) ALCOA case.
C) Microsoft case.
D) Standard Oil case.

Question 7

An agreement between two or more firms to collude in order to establish a price and not to compete on the basis of price is:

A) price-fixing.
B) output control.
C) market sharing.
D) coercion.

Question 8

Attempts by the federal government to prevent the exercise of monopoly power in the United States are called _______ policy.

A) stabilization
B) antitrust
C) fiscal
D) government

Question 9

In the decades after the Civil War, giant corporations began to dominate industries such as:

A) meat packing and oil.
B) farming and fishing.
C) textiles and farming.
D) fishing and textiles.

Question 10

An action that violates the law, with no consideration given to the circumstances surrounding the action, is called:

A) immoral.
B) illegal per se.
C) primitive.
D) collusive.

Question 11

The rule of reason refers to:

A) unreasonable forms of price discrimination.
B) the current need for more reasonable antitrust enforcement.
C) the reasonableness of conglomerate mergers as opposed to other types of mergers.
D) the idea that monopolies should be judged by their behavior.

Question 12

If a company conspired with or cooperated with other firms to raise prices, it would be in violation of the _______ Act.

A) Business Decency
B) Sherman Antitrust
C) Clayton
D) Federal Trade Commission

Question 13

When two or more firms combine or conspire to monopolize trade, they are most directly in violation of the:

A) Clayton Act.
B) Sherman Antitrust Act.
C) Federal Trade Commission Act.
D) Celler-Kefauver Act.

Question 14

Situations where whether or not a particular business practice is illegal depends on the circumstances surrounding the action are said to be subject to:

A) the rule of reason.
B) an unfair constraint.
C) monopolistic behavior.
D) oligopolistic behavior.

Question 15

The first law designed to curb monopoly power in the United States was the ________ Act.

A) Sherman Antitrust
B) Clayton
C) Federal Trade Commission
D) Robinson-Patman

Question 16

The rule of reason refers to:

A) the notion that those accused of using monopoly power to restrain trade should be judged by their behavior.
B) the fact that courts should consider the reasonableness of mergers in comparison to other profit-making schemes.
C) the legal and economic basis for a fair return to a large business firm.
D) the other side of excessive price discrimination.

Question 17

An action whose illegality depends on the circumstances surrounding the action is said to be subject to:

A) illegality per se.
B) the unreasonable rule.
C) the rule of reason.
D) the principle of excessive restraint.

Question 18

According to the text, the entrepreneurs who led the businesses that began to dominate various industries in the late nineteenth century were sometimes referred to as:

A) robber barons.
B) moguls.
C) the trust giants
D) the young monopolists.

Question 19

A successful application of the Sherman Antitrust Act was in _______ against _______.

A) 1880; the Ford Motor Company
B) 1889; the American Tobacco Company
C) 1911; Standard Oil
D) B and C are true.

Question 20

Market power in the United States was often gained in the latter part of the nineteenth century by:

A) forming trusts.
B) the growth of competition.
C) international arrangements with Russian and Japanese firms.
D) opening up more industries to international trade.

Question 21

The consolidation of firms that participate in the production of a given product line, but at different stages in the production process, is a(n):

A) vertical merger.
B) conglomerate merger.
C) monopoly merger.
D) horizontal merger.

Question 22

If a firm acquires stock and assets of a competitor and the result is a decrease in competition, it may very well be in violation of the:

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

Question 23

If a firm engages in a vertical merger that substantially reduces competition, then it is likely to be in violation of the:

A) Clayton Act.
B) Celler-Kefauver Act.
C) Sherman Antitrust Act.
D) Federal Trade Commission Act.

Question 24

The government is most likely to challenge a merger that:

A) is of the vertical type.
B) is of the conglomerate type.
C) results in a substantial lessening of competition, regardless of its type.
D) results in any lessening of competition.

Question 25

When judging the anticompetitive effects of a horizontal merger, the FTC and Justice Department are likely to look most closely at the:

A) combined concentration ratio of the merged firms.
B) size of the Herfindahl-Hirschman Index but not the change in the index.
C) change in the Herfindahl-Hirschman Index but not the size of the index.
D) size of the Herfindahl-Hirschman Index and the change in the index.

Question 26

A merger that combines two or more producers of the same good or service is called a ________ merger.

A) vertical
B) horizontal
C) slanting
D) sideways

Question 27

If an industry merger severely lessens competition, the merger would be in violation of the:

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

Question 28

If your software company cooperated with other software firms to raise prices, then your company would be in violation of the:

A) Sherman Antitrust Act.
B) Clayton Act.
C) Federal Trade Commission Act.
D) Celler-Kefauver Act.

Question 29

Justice Department guidelines indicate that they will challenge mergers in highly concentrated industries if the postmerger index changes by more than _____points, with presumption of enhanced market power if the change is more than _____points.

A) 50; 100
B) 50; 2500
C) 100; 200
D) 1,000; 2,500

Question 30

A merger that involves firms at different stages of the production process is called a ________ merger.

A) vertical
B) horizontal
C) slanting
D) sideways

Question 31

According to current Justice Department guidelines, any industry with a Herfindahl-Hirschman Index under _______ would be considered to be unconcentrated.

A) 1,000
B) 4,000
C) 8,000
D) 10,000

Question 32

Critics of antitrust policies point out that a ________ firm may be able to ________ small firms from competing, but other _______ firms may enter the industry in pursuit of ________ .

A) small; prevent; large; smaller profits.
B) large; prevent; equally large; economic profits
C) large; discourage; small; extraordinary profits.
D) small; interfere with; small; market share.

Question 33

The _______ Act blocked _______ mergers where a(n) _______ in competition could be shown.

A) Clayton; horizontal; change
B) Celler-Kefauver; vertical; reduction
C) FTC; all; increase
D) Robinson-Patman; vertical; reduction

Question 34

Critics of antitrust laws and enforcement activity argue that:

A) among the 500 largest companies in the United States in 1950, almost none have been displaced in the last 50 years.
B) the emergence of new firms suggests dynamism and the competitive nature of the economy.
C) it is necessary that an industry be perfectly competitive to achieve the benefits of competition.
D) there is not enough enforcement, and more effort should go into it.

Question 35

If the largest software company in the industry merges with the next two biggest software firms, such that competition is substantially reduced, it would be in violation of the:

A) Clayton Act.
B) Robinson-Patman Act.
C) Federal Trade Commission Act.
D) Celler-Kefauver Act.

Question 36

In 1914, Congress created the _______ that was given power to _______ .

A) Sherman Commission; investigate monopoly power
B) Federal Trade Commission; prosecute firms using illegal business practices
C) Clayton Commission; prosecute firms using illegal business practices.
D) Federal Reserve Board; outlaw tying agreements.

Question 37

The consolidation of firms that compete in the same industry or product line is a(n):

A) vertical merger.
B) conglomerate merger.
C) monopoly merger.
D) horizontal merger.

Question 38

The ________ doctrine dominated antitrust policy from 1945 to the 1970s, but it ________ .

A) rule of reason; had no critics
B) bigness is badness; had its critics
C) punish the competitor; few critics
D) smallness is madness; had its critics

Question 39

Justice Department guidelines stipulate that proposed mergers that result in a postmerger HHI between 1,000 and 2,500 will be challenged if they increase the HHI by more than _______ points.

A) 100
B) 75
C) 50
D) 25

Question 40

If the largest software company in the industry merges with retail stores and computer makers, such that competition is substantially reduced, it would be in violation of the:

A) Clayton Act.
B) Celler-Kefauver Act.
C) Sherman Antitrust Act.
D) Federal Trade Commission Act.

Question 41

Cooperative projects carried out by two or more firms are:

A) joint ventures.
B) output controls.
C) market consortiums.
D) commodity exchanges.

Question 42

In the Case in Point on antitrust policy's impact on consumers, the Ashenfelter and Hosken analysis indicated that four out of five mergers in the consumer products industry resulted in _____ prices suggesting that, pending further study, _____ government intervention might be needed.

A) higher; less
B) higher; more
C) lower; less
D) lower; more

Question 43

The public interest theory of regulation holds that a regulatory agency:

A) acts as the decision-making head of the industry it regulates.
B) encourages other regulatory agencies to deregulate their industries.
C) seeks to find market solutions that are economically efficient.
D) extends its regulatory powers over industries it was not intended to regulate.

Question 44

ICPAC (International Competition Policy Advisory Committee) was created in 1997 in recognition of the _______ in international commerce and the _______ in international anti-competitive activity.

A) decrease; decrease
B) decrease; increase
C) increase; decrease
D) increase; increase

Question 45

According to the textbook, any effort by government to influence or control the choices of private firms and individuals is called:

A) unpatriotic behavior.
B) encroachment.
C) libertarianism.
D) regulation.

Question 46

Selling below cost by foreign firms is punishable under the _______ Act.

A) Clayton
B) Sherman
C) Omnibus Trade and Competitiveness
D) Global Dependence and International Competitiveness Antidumping

Question 47

The attempt of regulatory agencies to find market solutions that are economically efficient is explained by:

A) theories of public finance.
B) imperfectly competitive models.
C) the public choice theory of regulation.
D) the public interest theory of regulation.

Question 48

According to Eleanor Fox, a professor at New York University who was cited in the Case in Point on the differences between antitrust policy in the United States and European Union:

A) U.S.antitrust policy is primarily consumer-oriented.
B) European Union antitrust policy is primarily consumer-oriented.
C) U.S.antitrust policy primarily emphasizes the unfair competitive advantages of dominant firms.
D) European Union antitrust policies are concerned about unfair competitive advantages gained by smaller firms and therefore do not consider the interests of consumers.

Question 49

When the anticompetitive effects of a horizontal merger are considered, the Justice Department is most likely going to consider very closely:

A) the size of and change in the Herfindahl-Hirschman index.
B) market share only.
C) changes in the Herfindahl-Hirschman index, but not the absolute size of the index.
D) only one thing: Is the merger illegal per se?

Question 50

The public choice theory of regulation:

A) holds that firms may have to be regulated in order to guarantee that certain goods and services are available to consumers.
B) is often justified by pointing to such things as pollution that are not considered by firms on their own.
C) is used to counter market failure.
D) holds that a regulatory agency often serves the interests of government bureaucrats over those of the public.

Question 51

The inclination of regulatory agencies to find market solutions that are economically efficient is explained by the:

A) theory of imperfect competition.
B) public interest theory of regulation.
C) capture theory of regulation.
D) public choice theory of regulation.

Question 52

Regulatory agencies attempt to:

A) limit the degree of competition between firms.
B) influence business decisions that affect consumer and worker safety.
C) guide businesses into the most profitable channels.
D) establish tariffs and quotas against foreign firms.

Question 53

Projects that are cooperatively carried out by two or more firms are called:

A) collusive endeavors.
B) partnerships.
C) tied contracts.
D) joint ventures.

Question 54

ICPAC (International Competition Policy Advisory Committee) is to provide advice and information on:

A) transnational terrorism.
B) international anticompetitive issues.
C) intrastate mergers in the United States.
D) the Winter Olympics.

Question 55

If a foreign firm dumps or sells goods below cost, it can be more easily prosecuted through the:

A) Clayton Act.
B) Sherman Antitrust Act.
C) Celler-Kefauver Act.
D) Omnibus Trade and Competitiveness Act.

Question 56

Selling below cost by foreign firms is called:

A) dumping.
B) undercutting.
C) unfair competition and is punishable under the Clayton Act.
D) unpatriotic.

Question 57

An effort by government agencies to control the choices of private firms or individuals is:

A) regulation.
B) market failure.
C) antitrust.
D) barriers to entry.

Question 58

Regulation by the government to influence the marketing of medicine and food is accomplished by the:

A) Food and Drug Administration.
B) Securities and Exchange Commission.
C) Federal Trade Commission.
D) ICC.

Question 59

Firms in Japan and Europe are subject to _______ antitrust restrictions than (as) U.S.firms.

A) the same
B) more
C) less
D) more international

Question 60

In the late 1980s, antitrust enforcement was altered so that _______ competitive U.S.firms could cooperate in _______ in research and development.

A) vertically; foreign markets
B) horizontally; joint ventures
C) vertically; joint ventures
D) horizontally; international cartels

Question 61

The inclination of regulatory agencies to promote the interests of government agency employees over those of the public is explained by the:

A) theory of imperfect competition.
B) public interest theory of regulation.
C) capture theory of regulation.
D) public choice theory of regulation.

Question 62

The _______ theory of regulation asserts that firms seek licensing requirements and government action to regulate prices to prevent other firms from entering the market.

A) public interest
B) firm take-over
C) monopoly
D) capture

Question 63

Consumer protection laws are based on:

A) the concept that consumers do not always know what is good for them.
B) the notion that consumers will benefit from being protected at no cost.
C) the belief that consumers have sufficient information to make decisions.
D) the idea that competitive markets always provide safe products.

Question 64

Many government imposed regulations on markets are based on the presumption that consumers are _______ , but often do not have _______ to make choices in their best interests.

A) rational; sufficient information
B) irrational; the will
C) willing; the determination
D) rational; sufficient incomes

Question 65

Regulatory efforts aimed at protecting consumers have not:

A) benefited them.
B) increased costs of some goods and services.
C) caused prices of some goods and services to increase.
D) been universally denounced by economists, even if they stress the costs involved.

Question 66

Consumer protection laws generally do not:

A) provide benefits to the consumer.
B) increase costs to the consumer.
C) increase consumer choices.
D) provide information to consumers.

Question 67

Regulation of markets and enforcement of consumer safety laws may involve the cost of:

A) economic instability.
B) fewer products being available.
C) the use of fewer resources in government.
D) all of the above.

Question 68

The public choice theory of regulation indicates that a regulatory agency:

A) encourages other regulatory agencies to deregulate their industries.
B) seeks to find market solutions that are economically efficient.
C) extends its regulatory powers over industries it was not intended to regulate.
D) promotes the interests of government employees over those of the public.

Question 69

The capture theory of regulation indicates that a regulatory agency:

A) often serves the regulated firms rather than their customers.
B) encourages other regulatory agencies to deregulate their industries.
C) seeks to find market solutions that are economically efficient.
D) extends its regulatory powers over industries it was not intended to regulate.

Question 70

Which of the following statements is consistent with the notion that most consumer protection regulations work as intended?

A) Safety requirements in cars have led to increased reckless driving incidents.
B) Child-proof medicine containers appear to have made people more careless with medicines.
C) Whenever the cost of an activity is reduced, people will tend to do more of it.
D) There has been a significant reduction in fires caused by faulty electric wiring.

Question 71

The idea that government regulations often end up by serving the regulated firms is called:

A) public choice theory.
B) public interest theory.
C) the capture theory of regulation.
D) the rational ignorance theory of regulation.

Question 72

The actions of regulatory agencies that promote the interests of government employees over those of the public can be explained, in part, by the:

A) theory of public finance.
B) public choice theory of regulation.
C) capture theory of regulation.
D) theory of market failure.

Question 73

Public choice theory suggests that in the regulatory process:

A) tech group pursues greater efficiency.
B) the various groups involved pursue their own respective interests.
C) individuals act to advance the public interest.
D) bureaucrats act to advance the public interest.

Question 74

The public choice theory of regulation rests on the premise that:

A) individuals are evil and will only do the wrong thing.
B) individuals will pursue their own self-interest in private, but not public matters.
C) people employed by government will pursue their own self-interest.
D) public servants can be trusted to serve the public interest.

Question 75

The Federal Communications Commission regulates:

A) sales of securities, such as stocks.
B) food, drugs, and cosmetics.
C) broadcasting and telecommunications.
D) business practices.

Question 76

The tendency for a regulatory agency to promote the interests of the industry it regulates, rather than the public's interests, is explained by the:

A) theory of imperfect competition.
B) public interest theory of regulation.
C) capture theory of regulation.
D) market failure of externalities.

Question 77

A cost imposed on society by consumer protection laws is:

A) a decline in product availability.
B) the promotion of society's well-being.
C) the use of fewer resources in administration and enforcement.
D) a higher rate of technological advances.

Question 78

Public choice theory suggests:

A) regulatory agencies seek to reduce their bureaucratic structure in order to reduce the need for high taxes.
B) bureaucrats do not respond favorably to lobbyists and special interest groups.
C) that firms may exploit regulation in order to limit competition.
D) government employees seek to serve the public interest, not their private interests.

Question 79

One of the problems associated with trying to assess the benefits of consumer protection laws is that they have often induced:

A) the exact behavior desired.
B) behavioral changes that worked against the intent of the regulation.
C) people to drive more carefully because of automobile safety requirements.
D) manufacturers to target children as potential customers for illegal drugs.

Question 80

The marketing of medicines and food is regulated by the:

A) Interstate Commerce Commission.
B) Federal Trade Commission.
C) Securities and Exchange Commission.
D) Food and Drug Administration.