Question 1

Which of the following is correct?

Accepted Answer

Vertical mergers involve firms at different stages of the production process, such as a manufacturer and a supplier. They are generally considered to be less harmful to competition than horizontal mergers, which involve competitors in the same market. Therefore, antitrust laws are more likely to allow vertical mergers to proceed.

Option B is incorrect because a vertical merger involves firms at different stages of the production process, not competing firms.

Option C is incorrect because horizontal mergers are generally more closely scrutinized by antitrust laws due to their potential to reduce competition.

Option D is incorrect because conglomerate mergers involve firms in unrelated industries, not firms at various stages in a good's production.

Question 2

Price-fixing is considered to be a per se violation of the antitrust laws because

Accepted Answer

Price-fixing is considered a per se violation of antitrust laws because it is inherently illegal, and a guilty verdict only requires proof of the existence of a conspiracy to fix prices, regardless of whether it succeeded or caused harm.

Question 3

Which of the following findings would be the most likely to lead the U.S. Justice Department to block a corporate merger under terms of the Clayton Act?

Accepted Answer

A high premerger Herfindahl index in the industry and a large boost in the index because of the merger would indicate a significant increase in market power and concentration, which is a key factor in determining whether a merger violates antitrust laws. The Clayton Act prohibits mergers and acquisitions that would lessen competition or create a monopoly, and a high market concentration would suggest that the merged entity could potentially dominate the market and harm competition.

Question 4

Suppose that two firms in an industry with a Herfindahl index of 5,000 announce a merger. The U.S. Justice Department concludes the merger will boost the index to 5,500. The antitrust authorities will most likely

Accepted Answer

The increase in the Herfindahl index from 5,000 to 5,500 is considerable, indicating that the merger will substantially increase market concentration. As a result, the antitrust authorities are likely to prevent the merger under the Clayton Act, which prohibits mergers that may result in a substantial lessening of competition.

Question 5

Conspiracies to fix prices are

Accepted Answer

Conspiracies to fix prices are considered per se violations of the antitrust laws, meaning they are automatically considered illegal without needing to prove their actual harm on competition. This has been the case for many years and has not changed in recent decades. The Clayton Act and Celler-Kefauver Act also address antitrust issues but do not specifically focus on price-fixing conspiracies.

Question 6

A merger between a maker of household detergents and a fast-food chain would be an example of

Accepted Answer

A conglomerate merger involves companies that operate in completely different industries. In this case, a maker of household detergents and a fast-food chain operate in different industries, making it a conglomerate merger.

Question 7

Structuralists take the position that

Accepted Answer

Structuralists believe that an industry that is highly concentrated will behave monopolistically, regardless of the behavior of individual firms within the industry. They argue that structural characteristics of an industry, such as the number of firms and the level of concentration, are the primary determinants of market behavior and competition. Therefore, answer D is the correct one.

Question 8

Which one of the following is most likely to increase the Herfindahl index of a particular industry?

Accepted Answer

A horizontal merger involves the merger of firms operating within the same industry and selling similar products, which reduces competition and increases market power. This results in an increase in the Herfindahl index, which is a measure of market concentration.

Question 9

A merger between an automobile manufacturer and a maker of automobile tires is an example of a

Accepted Answer

A merger between an automobile manufacturer and a maker of automobile tires is an example of a vertical merger, as they are two companies operating at different stages in the production process of the same product. The automobile manufacturer is at the production stage, while the tire maker is at the raw material stage.

Question 10

In the U.S. Steel case, the court ruled that

Accepted Answer

The U.S. Steel case established that only monopolies that unreasonably restrain trade are subject to antitrust action under the Sherman Act. This ruling highlighted the importance of considering the effect of a firm's behavior on competition, rather than simply focusing on the possession of monopoly power.

Question 11

Which of the following is most likely to increase the Herfindahl index of a particular industry?

Accepted Answer

A horizontal merger between two of the industry's largest firms will increase the concentration of market share within the industry, leading to a higher Herfindahl index. This is because the combined market share of the two largest firms will increase, which will increase the concentration of the industry. A vertical merger or conglomerate merger may not necessarily increase concentration within the industry. An agreement by all the industry firms to divide up the market among them would actually decrease market concentration and lower the Herfindahl index.

Question 12

The decision in the U.S. Steel case

Accepted Answer

The answer of The decision in the U.S. Steel case
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Question 13

A vertical merger involves a combining of one or more firms

Accepted Answer

A vertical merger involves the combination of firms that are operating at different stages of the production process in a particular industry. This type of merger occurs when a company acquires its supplier or distributor, or merges with a company that operates in a different stage of the production process. This type of merger can result in greater efficiency, lower costs, and greater control over the quality of the final product.

Question 14

A firm charged with monopolizing a market is less likely to be convicted if

Accepted Answer

A broad definition of the market makes it more difficult to prove that the firm has monopoly power, as it implies more competition and substitutes are available.

Question 15

Suppose the firms in a five-firm industry have market shares of 30, 30, 20, 10, and 10 percent, respectively. The Herfindahl index for the industry is

Accepted Answer

To calculate the Herfindahl index, we need to square the market share of each firm, and then sum these values.

For this industry, the calculation is as follows:

(0.3)^2 + (0.3)^2 + (0.2)^2 + (0.1)^2 + (0.1)^2 = 0.09 + 0.09 + 0.04 + 0.01 + 0.01 = 0.24

Therefore, the Herfindahl index for this industry is 2400, which is option B.

Question 16

Which one of the following is not correct?

Accepted Answer

Antitrust suits can be originated not only by the Federal Trade Commission but also by the Department of Justice, state attorneys general, and private parties.

Question 17

A merger of several firms operating in different industries-for example, a trucking company, a fast-food chain, and a brokerage house-is called

Accepted Answer

A conglomerate merger refers to a merger of firms that operate in different industries or have different business activities. It is different from a vertical merger that involves firms in the same industry but at different stages of production or distribution. A horizontal merger involves firms in the same industry and at the same stage of production or distribution. An integrated merger involves firms in the same industry and at different stages of production or distribution, but it is a less commonly used term compared to vertical or horizontal mergers.

Question 18

Antitrust authorities are least likely to take action against

Accepted Answer

Conglomerate mergers involve companies that operate in unrelated business activities, which typically do not reduce competition in a specific market, making them less likely to attract antitrust action compared to horizontal mergers, interlocking directorates, or price-fixing, which directly affect market competition.

Question 19

Behavioralists believe that

Accepted Answer

Behavioralists believe that industries should be judged on the basis of their price-output behavior and their technological progressiveness. They argue that monopolistic industries can sometimes be beneficial if they are innovative and provide advancements in technology. Therefore, they focus more on the behavior of the industry rather than just the concentration of power. The other options are incorrect because they do not accurately reflect the beliefs of behavioralists.

Question 20

A conglomerate merger

Accepted Answer

A conglomerate merger involves the combination of two firms that are in different industries or have no obvious common business interest. These mergers often extend the range of products sold or extend territories in which products are sold. They may also combine totally unrelated products. Therefore, option A is the correct answer. Option B describes a vertical merger, while option C describes a horizontal merger. Option D is incorrect as conglomerate mergers are legal unless they create a monopoly or harm competition.

Quiz 21: Antitrust Policy and Regulation