Question 1

Which of the following is a per se violation?

Accepted Answer

Price-fixing is considered a per se violation of antitrust laws, meaning it is inherently illegal and does not require analysis of market power or competitive effects.

Question 2

The situation where a single firm can supply the product to an entire market at a lower unit cost than if the market were split among a number of competing firms, is called a

Accepted Answer

A natural monopoly occurs when the economies of scale of production are so significant that a single firm can produce and supply the entire market at a lower unit cost than if multiple firms were competing. This can result in barriers to entry for potential competitors, ultimately leading to a market dominated by a single firm.

Question 3

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 measures the concentration of market power among the existing firms in a market. It is calculated as the sum of the squared market shares of all firms in the market.

In this case, the industry had a single firm, so its market share was 100%. Therefore, the initial Herfindahl index was 10,000 (100 squared).

After the breakup, there are two firms that will share the market equally. Assuming that each firm gets a 50% market share, the Herfindahl index would be calculated as follows:

(50)^2 + (50)^2 = 2,500

Therefore, the Herfindahl index would change from 10,000 to 5,000, which is a reduction by half. However, this calculation assumes that the new firms will have equal market power, which may not be the case in reality.

Question 4

Which of the following has tended to reduce the importance of antitrust law, according to some economists?

Accepted Answer

Rapidly changing technology has tended to reduce the importance of antitrust law according to some economists. As technology advances, new competitors emerge, and existing firms may quickly become obsolete, reducing the likelihood of long-term market power and anti-competitive behavior.

Question 5

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 an action that is inherently illegal under antitrust laws, such as conspiring to fix prices, regardless of whether the conspiracy was successful or not.

Question 6

A merger that is neither horizontal nor vertical is called a

Accepted Answer

A conglomerate merger is a type of merger between companies that operate in different industries or have unrelated business activities. This type of merger is neither horizontal (between competitors in the same industry) nor vertical (between companies in different stages of the supply chain).

Question 7

Per se violations in antitrust law refer to

Accepted Answer

Per se violations in antitrust law refer to activities that are deemed illegal in and of themselves, without any need for further analysis. Examples include price fixing, bid rigging, and market allocation schemes.

Question 8

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

Accepted Answer

Horizontal mergers involve the combination of two companies that operate in the same industry and compete directly with each other. These types of mergers are more likely to reduce competition and result in higher prices for consumers, which is why they are subject to close scrutiny by antitrust regulators.

Question 9

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

Accepted Answer

The Herfindahl index is used in Federal merger guidelines to determine market concentration and the potential impact of a merger on competition. It takes into account the market share of each firm and sums the squares of their market shares. A higher Herfindahl index indicates greater concentration and potential for anti-competitive behavior, while a lower index indicates a more competitive market.

Question 10

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 states that a highly concentrated industry acts like an anticompetitive monopolist, which suggests that market structure is a crucial aspect for antitrust enforcement. Therefore, the application of antitrust laws should be based on industry structure rather than mergers, regulation, or behavior.

Question 11

The Herfindahl index measures the

Accepted Answer

The Herfindahl index is a measure of market concentration. It is calculated by summing the squared values of the market shares of all firms in an industry. The higher the Herfindahl index, the more concentrated the market.

Question 12

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

Accepted Answer

A narrower market definition typically means fewer firms and products, leading to a higher concentration and thus an increase in the Herfindahl index.

Question 13

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

Accepted Answer

The Herfindahl index measures the concentration of market power among firms in an industry by summing the squares of their market shares. The higher the Herfindahl index, the more concentrated the industry is, and therefore the fewer firms there are that dominate the market. The other answer choices (A, C, and D) are either incorrect or unrelated to the measurement of market concentration.

Question 14

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

Accepted Answer

Price-fixing is a serious violation of antitrust laws as it directly harms consumers by artificially inflating prices and reducing competition.

Question 15

In antitrust law, "price-fixing" refers to

Accepted Answer

Price-fixing refers to competitors colluding to set their prices collectively, which harms competition and ultimately harms consumers. It is considered illegal under antitrust laws. A, B, and D are incorrect because they do not accurately describe price-fixing.

Question 16

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

Accepted Answer

Price discrimination is rarely challenged under antitrust laws because it can often be justified by differences in cost, market conditions, or competition, making it less straightforward to prove as anti-competitive compared to practices like price-fixing or tying contracts.

Question 17

Antitrust legislation in the United States in recent decades has

Accepted Answer

Antitrust legislation in the United States has varied in enforcement in recent decades. While there have been some notable cases and enforcement efforts, there have also been instances where the legislation has not been vigorously enforced. Therefore, the answer is C - varied between the extremes of being enforced and being ignored. Option A is incorrect because while there have been instances of enforcement, it has not been consistently vigorous. Option B is incorrect as there have been some instances of enforcement. Option D is not a relevant option as antitrust legislation is meant to protect competition and prevent monopolies, rather than destroy entrepreneurship.

Question 18

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, the index is 5*(20^2) = 2,000. After the merger, the new firm would have a 40% market share, and the index would be 3*(20^2) + 40^2 = 2,800, increasing by 800. This significant increase would likely raise antitrust concerns.

Question 19

Most economists agree that, overall, U.S. antitrust policy has been most successful in

Accepted Answer

While all of the options have been goals of U.S. antitrust policy, most agree that the policy has been most successful in deterring price-fixing and anticompetitive mergers. This is evidenced by the numerous successful enforcement actions taken by the Department of Justice and Federal Trade Commission against companies engaging in anticompetitive behavior. While breaking up monopolies has been a notable past success of antitrust policy, it has become less common in recent decades.

Question 20

The degree of strictness in the enforcement of antitrust laws often depends on

Accepted Answer

The appointment of individuals who are more or less favorable towards aggressive enforcement of antitrust laws can have a significant impact on the degree of strictness in enforcement. For example, a presidential administration that places a high priority on antitrust enforcement may appoint individuals to key positions who are more likely to pursue aggressive enforcement actions. Conversely, an administration that is less focused on antitrust may appoint individuals who are less likely to pursue such actions. Thus, political appointments are a key determinant of the degree of strictness in antitrust enforcement.

Quiz 21: Antitrust Policy and Regulation