Question 1

If Cheesy Cheese agrees to sell its cheese to Fresh Pizza on the contractual condition that Fresh Pizza purchases 100 percent of the cheese needed to make its pizzas from Cheesy Cheese, this is an example of_____ .

Accepted Answer

This is an example of a requirements contract, where one party agrees to supply all of a certain product to the other party in exchange for a promise from the other party to purchase all of its needed quantity of the same product from the first party.

Question 2

An exclusive dealing contract is a _____contractual requirement that _____.

Accepted Answer

An exclusive dealing contract is a type of vertical contractual requirement that forbids the buyer from selling products that compete with the seller's product. This type of contract is designed to create loyalty between the buyer and the seller and is often used to leverage market power. The seller is able to restrict the buyer's freedom to choose other suppliers in order to secure their market position.

Question 3

A horizontal merger can lead to all of the following except which one?

Accepted Answer

A horizontal merger involves the consolidation of two firms in the same industry. This can lead to a decrease in competition and an increase in market power, potentially leading to a monopoly. It can also result in a deadweight loss if the merged firm raises prices and reduces output. However, it is unlikely to result in a perfectly competitive market, as the consolidation of firms reduces the number of competitors in the market. Therefore, choice C is the correct answer as it is not a possible outcome of a horizontal merger.

Question 4

Exclusive dealing contracts and requirements contracts are illegal per se.

Accepted Answer

Exclusive dealing and requirements contracts are not automatically illegal under antitrust laws. They are evaluated under the rule of reason, which weighs the pro-competitive effects of the contract against any potential anti-competitive effects.

Question 5

Section 3 of the Clayton Act prevents an individual from sitting on the boards of directors of two competing firms.

Accepted Answer

The answer of Section 3 of the Clayton Act prevents...

Question 6

If Crunchy Fries agrees to sell its frozen potato fries to a large grocery chain on the contractual condition that the grocery chain does not sell any of Crunchy Fries' competitors' frozen potato fries, this is an example of_____ .

Accepted Answer

This is an example of an exclusive dealing contract, where one party agrees to only sell to the other party and the other party agrees to only buy from the first party.

Question 7

To identify the product market, antitrust agencies use

Accepted Answer

Antitrust agencies use both qualitative and quantitative tools to identify the product market. Qualitative tools include analyzing customer preferences, substitution possibilities, and product characteristics. Quantitative tools include analyzing market shares, price correlations, and demand elasticities.

Question 8

If a tire manufacturer agrees to sell its tires to an automobile producer on the contractual condition that the automobile producer purchases 100 percent of its tires needed from the tire manufacturer, this is an example of_____ .

Accepted Answer

This is a requirements contract, as it sets a requirement for the automobile producer to purchase 100 percent of its tires from the tire manufacturer. It is not a tying arrangement, as there is no requirement to purchase a second product in addition to the tires. It is also not an exclusive dealing contract, as there is no exclusivity requirement in the contract. A horizontal contract would involve agreements between competitors at the same level of the supply chain.

Question 9

An antitrust agency is identifying the product market for Good X and determines that Good X and Good Y have a cross- price elasticity of 0.04. As a result of the cross- price elasticity, the antitrust agency is likely to _____Good Y from Good X's product market as the products ______ compete as close substitutes.

Accepted Answer

exclude; do notA cross-price elasticity of 0.04 indicates that the demand for Good X is not very responsive to changes in the price of Good Y, suggesting that consumers do not see Good Y as a close substitute for Good X. Therefore, the antitrust agency is likely to exclude Good Y from Good X's product market because the products do not compete as close substitutes.

Question 10

Conditional sales are always illegal per se under the Clayton Act.

Accepted Answer

Conditional sales are not always illegal per se under the Clayton Act. It depends on the specific circumstances and whether they violate antitrust laws.

Question 11

If a horizontal merger lowers the cost of production and increases the total surplus in the market, which of the following is also likely to have occurred?

Accepted Answer

The answer of If a horizontal merger lowers the cost...

Question 12

U.S. antitrust agencies tend to emphasize ______ surplus and generally challenge the merger if they believe the predicted price will_____ as a result of the merger.

Accepted Answer

U.S. antitrust agencies focus on protecting consumer welfare, which includes ensuring that prices do not rise as a result of mergers that could reduce competition. Therefore, they emphasize consumer surplus and are likely to challenge mergers that they predict will lead to price increases.

Question 13

Exclusive dealing contracts and requirements contracts are procompetitive as they encourage advertising.

Accepted Answer

Exclusive dealing contracts and requirements contracts can encourage advertising as they offer incentives to the supplier to promote the product and increase sales. This can lead to increased competition and consumer awareness, which is generally considered procompetitive.

Question 14

A merger will usually be challenged if which of the following is expected to occur as a result of the merger?

Accepted Answer

When a merger is expected to result in a decrease in consumer surplus, it is likely to be challenged because it can harm consumers by reducing their ability to purchase and enjoy goods or services at a reasonable cost. A decrease in consumer surplus means that consumers will have to pay more for the same product, which can be regarded as a negative outcome of the merger. However, if the merger is expected to result in an increase in consumer surplus, it is unlikely to be challenged, as it can benefit consumers by increasing their ability to purchase and enjoy goods or services at a lower cost. Therefore, option D is the best choice.

Question 15

If two goods have a _____cross- price elasticity of demand, then the antitrust agencies can conclude that the products_____ compete in the same market as strong substitutes.

Accepted Answer

When the cross-price elasticity of demand between two goods is large, it means that a change in the price of one good leads to a proportionate change in the quantity demanded of the other good. This indicates that the two goods are close substitutes and compete in the same market. Therefore, the antitrust agencies can conclude that the products do compete in the same market as strong substitutes.

Question 16

Exclusive dealing contracts and requirements contracts have both procompetitive and anticompetitive motivations.

Accepted Answer

Exclusive dealing contracts and requirements contracts can promote efficiencies and enhance competition by facilitating long-term relationships and investment in research and development, but they can also lead to exclusionary conduct and market foreclosure if used to limit competition or impede entry.

Question 17

If Healthy Bars agrees to sell its snack bars to a large grocery chain on the contractual condition that the grocery chain does not sell any of Healthy Bars' competitors' snack bars, this is an example of_____.

Accepted Answer

This is an example of an exclusive dealing contract, where one party (Healthy Bars) agrees to sell products to another party (the grocery chain) under the condition that the latter does not sell any competing products. This type of agreement restricts the buyer's (grocery chain's) ability to purchase or sell competitors' products.

Question 18

_____mergers can lead to increased market power and, as a result, _____the total surplus in the market.

Accepted Answer

Horizontal mergers can lead to increased market power for the merged entity, which can then reduce competition. This reduction in competition can lead to higher prices and lower quantities of goods or services being produced and sold, thereby decreasing the total surplus in the market.

Question 19

A merger will usually be challenged if which of the following is expected to occur as a result of the merger?

Accepted Answer

A merger that is expected to result in a price increase is likely to face challenges from regulators, as it could be seen as a violation of antitrust laws. The goal of antitrust laws is to protect consumers from monopolies or oligopolies that could lead to higher prices and reduced consumer surplus. Therefore, if a merger is expected to lead to a price decrease or an increase in consumer surplus, it is less likely to be challenged. If competition remains after the merger, it may also be viewed favorably by regulators.

Question 20

An antitrust agency is identifying the product market for Good X and determines that Good X and Good Y have a cross- price elasticity of 0.01. As a result of the cross- price elasticity, the antitrust agency is likely to_____ Good Y from Good X's product market as the products ______ compete as close substitutes.

Accepted Answer

A cross-price elasticity of 0.01 indicates that the goods are not close substitutes, as the value is close to 0, suggesting that a price change in one does not significantly affect the demand for the other. Therefore, the agency is likely to exclude Good Y from Good X's product market.

Quiz 9: A Managers Guide to Antitrust Policy

If Cheesy Cheese agrees to sell its cheese to Fresh Pizza on the contractual condition that Fresh Pizza purchases 100 percent of the cheese needed to make its pizzas from Cheesy Cheese, this is an example of_____ .

An exclusive dealing contract is a _contractual requirement that _.

A horizontal merger can lead to all of the following except which one?

Exclusive dealing contracts and requirements contracts are illegal per se.

Section 3 of the Clayton Act prevents an individual from sitting on the boards of directors of two competing firms.

If Crunchy Fries agrees to sell its frozen potato fries to a large grocery chain on the contractual condition that the grocery chain does not sell any of Crunchy Fries' competitors' frozen potato fries, this is an example of_____ .

To identify the product market, antitrust agencies use

If a tire manufacturer agrees to sell its tires to an automobile producer on the contractual condition that the automobile producer purchases 100 percent of its tires needed from the tire manufacturer, this is an example of_____ .

Conditional sales are always illegal per se under the Clayton Act.

If a horizontal merger lowers the cost of production and increases the total surplus in the market, which of the following is also likely to have occurred?

U.S. antitrust agencies tend to emphasize __ surplus and generally challenge the merger if they believe the predicted price will_ as a result of the merger.

Exclusive dealing contracts and requirements contracts are procompetitive as they encourage advertising.

A merger will usually be challenged if which of the following is expected to occur as a result of the merger?

If two goods have a _cross- price elasticity of demand, then the antitrust agencies can conclude that the products_ compete in the same market as strong substitutes.

Exclusive dealing contracts and requirements contracts have both procompetitive and anticompetitive motivations.

If Healthy Bars agrees to sell its snack bars to a large grocery chain on the contractual condition that the grocery chain does not sell any of Healthy Bars' competitors' snack bars, this is an example of_____.

_mergers can lead to increased market power and, as a result, _the total surplus in the market.

A merger will usually be challenged if which of the following is expected to occur as a result of the merger?