Question 1

Which of the following is a per se violation?

Accepted Answer

Price-fixing is considered a per se violation of antitrust laws because it directly interferes with the competitive process, agreeing among competitors to set prices at a certain level or range without any justification related to cost or market conditions.

Question 2

The Herfindahl index measures the

Accepted Answer

The Herfindahl index is a measure of market concentration and is calculated as the sum of the squared market shares of all firms in the industry. It gives more weight to larger firms.

Question 3

An example of a horizontal merger is one between an airline and

Accepted Answer

A horizontal merger occurs between companies that operate in the same industry, essentially being direct competitors. Therefore, a merger between one airline and another airline is a classic example of a horizontal merger, as they both operate within the airline industry.

Question 4

The sum of the squared values of market shares of firms in an industry is referred to as the

Accepted Answer

The Herfindahl index, also known as the Herfindahl-Hirschman Index (HHI), is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them. It is calculated as the sum of the squares of the market shares of all firms in the industry.

Question 5

In recent years, the strictest application of antitrust laws has been for

Accepted Answer

The strictest application of antitrust laws in recent years has been for prosecuting firms for price-fixing activity. This is because price-fixing directly manipulates market prices, harming consumers and competition, and is clearly illegal under antitrust laws.

Question 6

Which business practice is rarely challenged by the government under antitrust laws?

Accepted Answer

Price discrimination is less frequently challenged under antitrust laws, especially when it does not harm competition. The Robinson-Patman Act addresses price discrimination, but enforcement is less common compared to actions against practices like price-fixing, which directly harm market competition.

Question 7

A merger between McDonald's and Burger King would be an example of a

Accepted Answer

A merger between McDonald's and Burger King, both of which operate in the fast food industry and are direct competitors, would be an example of a horizontal merger. This type of merger occurs between companies that operate in the same industry and are at the same stage of production.

Question 8

The merger of a firm in one industry with another firm in the same industry that sells similar products is called a

Accepted Answer

A horizontal merger occurs when two or more firms that operate in the same industry and produce similar products or services combine. This type of merger is often pursued to achieve economies of scale, reduce competition, or expand market share.

Question 9

Which of the following indexes is used in Federal merger guidelines?

Accepted Answer

The Herfindahl index, also known as the Herfindahl-Hirschman Index (HHI), is used in Federal merger guidelines to assess the level of concentration in a market and the potential anti-competitive effects of mergers.

Question 10

An industry has a single firm and is found to have violated antitrust laws. The government breaks it up into two firms that will share the market equally. The Herfindahl index for this industry would change from

Accepted Answer

The Herfindahl index is calculated as the sum of the squares of the market shares of all firms in the industry. Initially, with a single firm, the index is 10,000 (100^2). After the breakup into two equal firms, each has a 50% market share, so the index becomes 5,000 (50^2 + 50^2).

Question 11

If Tyson Corporation, a firm that raises and processes chickens, combined with Kentucky Fried Chicken, the resulting merger would be an example of a

Accepted Answer

A vertical merger occurs when two companies that operate at different levels within the same industry's supply chain combine operations. Tyson Corporation, which raises and processes chickens, and Kentucky Fried Chicken, a company that sells prepared chicken to consumers, operate at different levels of the supply chain in the poultry industry. Tyson is a supplier, while KFC is a retailer. Their merger would streamline operations and potentially reduce costs, fitting the definition of a vertical merger.

Question 12

A merger between one firm and another firm that is its supplier is known as a

Accepted Answer

A vertical merger occurs when a firm merges with another firm that is its supplier, integrating different stages of production or distribution.

Question 13

If there was a conspiracy to fix prices, but the conspiracy did not succeed, the government can still take the conspiring firm to court for improper conduct. This situation would be an example of

Accepted Answer

A per se violation refers to actions that are considered illegal regardless of their actual effect on the market or the intentions behind them. Price fixing, even if unsuccessful, falls under this category because it is inherently anticompetitive and illegal under antitrust laws, without the need to demonstrate its impact on competition.

Question 14

Per se violations in antitrust law refer to

Accepted Answer

Per se violations in antitrust law are activities that are considered inherently illegal, without the need for detailed analysis to prove their harm to competition.

Question 15

An industry has five firms, each with a market share of 20 percent. There is no foreign competition, entry into the industry is difficult, and no firm is on the verge of bankruptcy. If two of the firms in the industry seek to merge, this action would most likely be opposed by the government because the Herfindahl index for the industry is

Accepted Answer

The Herfindahl index is calculated by summing the squares of the market shares of all firms in the industry. Initially, with five firms each having a 20% market share, the index is 2,000 (5 * 20^2). If two firms merge, their combined market share would be 40%, increasing the index by 800 (40^2 - 2*20^2). This significant increase would likely raise antitrust concerns.

Question 16

The argument that an industry that is highly concentrated will act like an anticompetitive monopolist would support the case that the application of antitrust laws should be based on industry

Accepted Answer

The argument is based on the idea that the structure of an industry, particularly its concentration, influences competitive behavior, suggesting that antitrust laws should focus on how an industry is structured to prevent monopolistic practices.

Question 17

If the market is defined more narrowly to include only a more restricted range of products, then the Herfindahl index will

Accepted Answer

When the market is defined more narrowly to include only a more restricted range of products, the Herfindahl index, which measures market concentration, will increase. This is because a narrower market definition typically means fewer competitors, leading to higher concentration levels.

Question 18

A merger that is neither horizontal nor vertical is called a

Accepted Answer

A conglomerate merger is a type of merger where the companies involved are in unrelated business activities, distinguishing it from horizontal (same industry) and vertical (different stages of production within the same industry) mergers.

Question 19

Which type of merger is most likely to be the focus of antitrust scrutiny and enforcement?

Accepted Answer

Horizontal mergers are most likely to be the focus of antitrust scrutiny because they involve companies that are direct competitors in the same market, potentially reducing competition and leading to higher prices or reduced services for consumers.

Question 20

In antitrust law, "price-fixing" refers to

Accepted Answer

Price-fixing involves competitors agreeing on pricing strategies rather than competing against each other, which is illegal under antitrust laws.

Quiz 21: Antitrust Policy and Regulation