Question 1

Texbeer Company manufactures and distributes beer only in Texas.National Breweries manufactures and distributes beer nationally,including in Texas.National lowers its prices in Texas,but nowhere else,selling its beer at below costs,to drive Texbeer out of business.Texbeer sues for price discrimination.In this situation,which of the following is true?

Accepted Answer

National Breweries is engaging in illegal primary line price discrimination by lowering its prices only in Texas to drive Texbeer out of business. Primary line price discrimination occurs when a supplier charges different prices to different buyers for the same product or service, and the price discrimination has the effect of lessening competition. In this case, National Breweries is charging lower prices only in Texas to drive out its competitor, which is a violation of antitrust laws.

Question 2

A clothing maker requires the retailers it deals with to sell all the clothing at a fixed price.In examining a retailer's challenge to this practice,a court would:

Accepted Answer

The answer of A clothing maker requires the retailers it...

Question 3

Both Lemon Light,Inc.and Orange Mist Corporation are soft drink distributors in Capital City.The soft drink business is highly competitive,profit margins are razor thin,and both companies are on the brink of bankruptcy.To save themselves,they agree to not sell soft drinks at a price below $3 per six-pack.This is a fair price; it allows both of them to make a fair profit; and the customers still get a relatively inexpensive drink.This action by Lemon Light and Orange Mist is:

Accepted Answer

The agreement between Lemon Light, Inc. and Orange Mist Corporation to not sell soft drinks at a price below $3 per six-pack constitutes horizontal price fixing, which is illegal under antitrust laws. This agreement eliminates competition between the two companies and harms consumers by limiting their choices and potentially driving up prices. The fact that both companies are on the brink of bankruptcy does not justify this illegal behavior.

Question 4

Tarco is a manufacturer and national distributor of spark plugs.It charges $8 per set for its plugs.Reemco manufactures and distributes spark plugs on the East Coast.In order to get customers away from Tarco,Reemco sells its plugs in New York City for $7 per set.Tarco learns of this and drops its prices to $7 per set only in New York.A Los Angeles customer of Tarco learns of this and sues Tarco for price discrimination.What is the most likely outcome?

Accepted Answer

Tarco's action is likely legal under the Robinson-Patman Act because it is meeting the competition's price in a specific market (New York City) to remain competitive.

Question 5

Texas Western is an international oil company engaged in the exploration for oil,the refinement of oil,and the distribution of oil products.Hollywood,Inc.is a national producer of films.Texas wants to merge with Hollywood.This would be what type of merger?

Accepted Answer

The merger between Texas Western (an oil company) and Hollywood, Inc. (a film production company) would be classified as a conglomerate merger, as there is no commonality between the two industries.

Question 6

Bargain Basement,Inc.is a discount house.It buys brand name products from various manufacturers and sells them at below the suggested retail price.This practice has angered some of those manufacturers who believe that their products are high quality and should not be sold at bargain basement prices.Several of those manufacturers agree that they will no longer sell their products to Bargain Basement.This action is:

Accepted Answer

The manufacturers' agreement to no longer sell their products to Bargain Basement is an example of an illegal group boycott. This is because the manufacturers are collectively refusing to do business with a particular retailer, which is a violation of antitrust laws.

Question 7

Three of the largest automobile dealers agreed among themselves as to what price they would pay to manufacturers for windshields to put in new vehicles.Would this constitute illegal price-fixing? If so,what kind?

Accepted Answer

This is buyers' illegal per se price fixing because the dealers are colluding to fix the price they will pay, which is a violation of antitrust laws.

Question 8

A manufacturer makes two products,Axobos and Belandos.Axobos are in very high demand,but Belandos are not.The manufacturer requires everyone who wants to buy any Axobos to also buy some Belandos.This action is:

Accepted Answer

This action is known as a tying arrangement. It is a practice where a seller sells one product with the condition that the buyer also purchases another product. In this case, the manufacturer is selling Axobos with the condition that the buyer also purchases Belandos.

Question 9

A publishing company acquires a paper mill.This is an example of a:

Accepted Answer

This is a backward vertical merger because the publishing company is acquiring a supplier (the paper mill), which is a step back in the production process.

Question 10

In many antitrust cases the definition of the relevant market is the most important issue.The determination of the relevant market often determines the outcome of the entire case,yet there is much subjectivity in the determination of the relevant market.Should there be more rigid guidelines for relevant market determination? Why or why not?

Accepted Answer

The answer of In many antitrust cases the definition of...

Question 11

A manufacturer distributes his products to retailers.However,the manufacturer requires that the retailers charge their customers a price set by the manufacturer.Anyone who does not charge these prices is terminated as a distributor.This action is:

Accepted Answer

This action is an example of vertical price-fixing, which is an agreement between a manufacturer and its distributors or retailers to set the prices at which the products will be sold to the end consumers. This practice is generally considered illegal under U.S. antitrust laws, as it can reduce competition and lead to higher prices for consumers. However, there are some situations where vertical price-fixing may be legal, such as when the manufacturer is providing promotional services or when the price is necessary to maintain brand image and quality control.

Question 12

Arlee owns a fast-food franchise.He purchases his supplies from various distributors around the area.Arlee's soft drink distributor decides not to deal with Arlee anymore,because Arlee is too demanding and always pays his bills late.Several other distributors individually reach the same decision.This action is:

Accepted Answer

The action is legal because each distributor independently decided not to deal with Arlee, making it a unilateral decision rather than a coordinated group boycott.

Question 13

The Dream Drive Corporation is a major manufacturer of automobiles in the United States.The Jupiter Company is a small manufacturer of automobiles in the United States.Dream Drive is willing to purchase and merge with Jupiter.No one else is willing to do so.Without some merger,Jupiter is doomed to extinction.Although this merger might usually be prohibited as anticompetitive,which of the following defenses would probably apply?

Accepted Answer

The failing company doctrine applies when a company is on the brink of failure and there is no other potential buyer or merger partner. In such cases, the antitrust laws may be relaxed to allow for a merger or acquisition that might otherwise be prohibited. In this scenario, Jupiter is doomed to extinction without a merger, and no other potential buyer or merger partner exists, so the failing company doctrine would likely apply as a defense against antitrust claims.

Question 14

Marvin Airlines is an established airline that is suddenly experiencing competition from a new airline,Cheapflites,in some of its markets.Cheapflites is a no frills airline that has a marketing policy claiming that all of its tickets are fully refundable.Marvin Airlines has rescheduled many of its flights to leave 15 minutes later than the Cheapflites flight for the same route.Prior to the departure of each Cheapflites flight,a Marvin employee goes to the Cheapflites waiting area with a megaphone and announces that they will allow Cheapflites passengers to fly on Marvin for $10 less than the cost of their Cheapflites ticket and get full service as a bonus.Because the Cheapflites tickets are fully refundable,most Cheapflites passengers accept the offer.Under the antitrust and unfair competition laws,which of the following is most likely true?

Accepted Answer

Marvin's actions could be considered unfair competition under Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices in commerce. The strategy of undercutting prices and targeting a competitor's customers directly in this manner could be seen as an attempt to unfairly eliminate competition.

Question 15

A large electronics manufacturer has focused on the computer and office machines markets.Recently,it introduced a videocassette recorder.The manufacturer has frequently considered entering the home entertainment markets,but recently proposed merging with a television and stereo equipment manufacturer rather than entering the market by itself.This merger could be challenged on the basis of:

Accepted Answer

The proposed merger between the electronics manufacturer and a television and stereo equipment manufacturer could potentially result in a substantial lessening of competition in the home entertainment market. This could lead to antitrust concerns and a potential challenge to the merger on this basis. Therefore, the best choice is A, the probability of a substantial lessening of competition theory. The other theories listed are not relevant to this scenario.

Question 16

Real Value,Inc.is a national distributor of food items.It manufactures and distributes virtually every type of food product,but it does not have a breakfast cereal line.Mixing Mills is the nation's leading manufacturer and distributor of breakfast cereals,which is all that it produces.Real Value wants to merge with Mixing Mills.This would be what type of merger?

Accepted Answer

The answer of Real Value,Inc.is a national distributor of food...

Question 17

The force with which the antitrust laws are enforced differs greatly depending on who is President at the time.Is it proper that these laws should be enforced much more rigorously under some presidential administrations than under others? How could a more consistent enforcement policy be put in place?

Accepted Answer

The answer of The force with which the antitrust laws...

Question 18

Sam and Amanda are both beer distributors in Center City.They agree not to sell beer to Skipper's Pizza Parlor because they find dealing with Skipper to be difficult.This action is:

Accepted Answer

The action of Sam and Amanda not to sell beer to Skipper's Pizza Parlor is a group boycott, which is an illegal practice under antitrust laws. This type of behavior is considered a conspiracy among competitors to harm another business or gain market power, which is seen as an unfair business practice.

Question 19

Which of the following actions taken by a company with monopoly power would not give rise to a cause of action for monopolization or attempt to monopolize?

Accepted Answer

Getting a patent on a new invention is a legitimate way for a company to gain exclusive rights to produce and sell a product, and it does not necessarily involve anti-competitive conduct.

Answer: B
 Creating excess capacity for production does not necessarily involve anti-competitive conduct.

Answer: D
 While buying the entire market of a raw material may limit competition and raise barriers to entry for new competitors, it is not necessarily illegal if it is done through legitimate means and does not involve anti-competitive conduct.

The action in choice C, charging a price that is below its cost to drive a competitor out of business, is known as predatory pricing and is considered an anti-competitive behavior that can give rise to a cause of action for monopolization or attempt to monopolize.

Question 20

Two supermarkets agree to charge $3.50 for a gallon of milk,which is a fair price in the locality.This action is:

Accepted Answer

Horizontal price-fixing is when two or more competitors agree to fix prices at the same level. In this scenario, the two supermarkets are agreeing to charge the same price for a gallon of milk, which is an example of horizontal price-fixing. It is illegal because it violates antitrust laws, regardless of whether the price is fair or not. Therefore, the correct answer is A).

Quiz 46: Antitrust Law and Unfair Trade Practices