Final Exam Public Policy

natural monopoly

a situation where it is more efficient to have one big firm than many small firms, this is due to economies of scale and has a lower marginal cost

An opinion essay in Forbes magazine argued for the elimination of all antitrust laws. "The government should not interfered in any priceing or oferring even if a company outright colludes with competitors to set a price...Those who do not like how a company operates are free to walk away from its products." From an economic perspective, the impact from consumers who "walk away" because of collusive pricing a. is the deadweight loss b. is the transfer to producers c. is the remaining consumer surplus d. is not relevant to the analysis of economic welfare

a.

Economies of scale in book publishing are most likely due to a. set-up costs b. thermal economies c. geographic site specificity d. government policies

a.

If Ford and GM decided to split the US into two geographic areas, with GM selling cars only east of the Mississippi river and Ford only selling cars west of that, this would be a. a violation of the Section One of the Sherman Act b. judged by the rule of reason since it would be efficient to ship cars shorter distances c. a voilation of Section Seven of the Clayton Act d. legal since they are not fixing prices and competitors provide stiff competition still

a.

The Sherman Antitrust Act prohibits price-fixing in the sense that a. competing executives cannot even talk about price fixing b. competing executives can talk about price fixings, but they cannot take action to fix prices c. a price-fixing agreement can lead to prosecution provided the government can show that the public was not well-served by the agreement d. None of the above are correct

a.

The result of American Tobacco's monopolization case was most similar to the outcome of the a. Standard Oil monopolization case b. US steel monopolization case c. American Airlines-Legend Airlines case d. Coke-Dr. Pepper case

a.

US Steel and OPEC both used market power to increase the price of their products. In the short run, they were both quite successful. In the long run, price dropped substantially in both markets. This was likely caused by a. entry into these industries b. successful antitrust enforcement c. direct price regulation by policy makers d. producers' concerns about consumer welfare

a.

Voluntary Export Restraints, imposed on Japanese auto manufacturers caused a. higher prices for Japanese cars and for domestically produced cars b. higher prices for Japanese cars but lower prices for domestically produced cars c. lower prices for Japanese cars and for domestically produced cars d. lower prices for Japanese cars but higher prices for domestically produced cars

a.

treble damages

allows the court to triple the amount of money/damages that the victim cause(ADM/Lysine)

Assume Microsoft violated antitrust laws causing $300 million in damages to Netscape, a competitor in the browser market. If Microsoft were found guilty, it could be ordered to pay Netscape a. $300 million b. $900 million c. 0, since competitors cannot be awarded damages d. only a nominal amount since browsers are usually free

b.

If an action is judged under the per se standard, that act a. is always legal b. is always illegal c. is presumed to be reasonable unless there is an overwhelming amount of evidence against it d. may or may not be legal, depends on the specifics of the case

b.

If an industry has large economies of scale and large economies of scope, we would predict a. a small number of large firms, each specializing in one product b. a small number of large firms, producing multiple products c. a large number of small firms, each specializing in one product d. a large number of small firms, each producing multiple products

b.

Monopoly pricing prevents some mutually beneficial trades from taking place. These unrealized, mutually beneficial trades are a. of little concern to society b. a deadweight loss to society c. a sunk cost to society d. also observed in competitive markets

b.

The Wagner Act a. gave farmers an exemption from antitrust law b. expanded the powers of labor unions c. overturned the Taft Hartley Act d. let US exporters conspire against foreign customers

b.

Which industry has demand that is most sensitive to changes in interest rates? a. agriculture b. automobiles c. oil d. all industries have the same sensitivity to interest rates

b.

Which of the following would be judged using a per se standard? a. Googles large and growing share of the online advertising market b. Chrysler, Ford, and GM agreed to stop unreasonable discounts on new car prices c. Apple requires all retailers to sell the newest ipad at the same price d. a merger between phone companies sprint and t-mobile

b.

economies of scope

broadness of products a company makes, believing it is more efficient to make a wide variety of products than just one

If Netflix convinced studios to withhold TV shows and movies from Amazon Prime Streaming service, this would be a violation of antitrust law on the grounds of a. price discrimination, like Utah Pie b. predation, like American Airlines c. group boycott, like Toys R Us d. price fixing, like ADM

c.

Multiplant operations by national breweries allowed national breweries to a. charge a lower price than local and regional brands b. eliminate advertising c. increase advertising and cut price d. decrease market concentration

c.

Oil producer Occidental made an offer to buy rival oil producer Anadarko in May 2019. A challenge to this merger would most likely be brought under a. Section 1 of the Sherman Act b. Section 2 of the Sherman Act c. Section Seven of the Clayton Act d. Section Three of the Wagner Act

c.

Parity was the idea that a. union workers should be protected from international competition b. everyone in the US should receive a universal basic income c. farm workers should earn as much as industrial workers d. food prices should be affordable for everyone

c.

Starkist, the tuna producer, pled guilty to violating Section One of the Sherman Antitrust Act in October 2018. This case was likely brought due to a. consumers who no longer trusted starkist because they falsified labels b. starkist's near monopoly in the sale of canned tuna c. an agreement to fix tuna prices by starkist and its competitors d. vertical integration in the tuna industry

c.

The most common outcome of an antitrust case that goes to court is a. a guilty finding and the break-up of the firm b. a guilty finding and prison sentences for the firm's executives c. a consent decree that puts restrictions on the firms conduct d. treble damages being awarded to the FTC

c.

Which of the following antitrust cases resulted in the break-up of the firm? a. Microsoft b. US Steel c. American Tobacco d. Google

c.

Which of the following is an example of vertical integration? a. standard oil bought many competing refineries during the 1880s. b. the average farm size increased from 133 acres to 435 acres over the last 100 years. c. us steel owned coal an ore mines, railroads, iron and steel works, and rolling mills d. opec countries nationalized many oil fields during the 1970s

c.

Agricultural cooperatives can restrict production of some fruits and vegetables using a. de-coupled payments b. support prices c. price loss coverage d. market orders

d.

In 1961 Continental Baking a national baker was accused of price discrimination. They charge significantly lower prices in Salt Lake City in an attempt to displace Utah Pie, a local baker. Consider the welfare effects of this pricing strategy. Compared to other cities, Salt Lake City would have a. higher consumer surplus and higher producer surplus b. lower consumer surplus and higher producer surplus c. lower consumer surplus and lower producer surplus d. higher consumer surplus and lower producer surplus

d.

The structure of the oil refining industry in the early 20th century changed dramatically because of a. OPEC b. technological innovation c. depletion of non-renewable resources d. antitrust action

d.

U.S. antitrust treatment of mergers a. has been consistent since the 1890s b. was strictest during the 1890s c. was strictest during the 2000s d. was strictest during the 1960s

d.

Which law created a prior notification requirement for larger mergers? a. Cellar Kefauver Amendment b. Clayton Act Section 7 c. Sherman Act d. Hart Scott Rodino Act

d.

Which of the following behaviors would be illegal under Section Two of the Sherman Antitrust Act? a. using a patent to gain monopoly control of an industry b. dominating an industry because of network externalities c. agreeing with rivals to set "fair" prices for a product d. gaining control of an industry through predatory pricing

d.

Which of the following companies in the cases discussed in class, was found guilty of violating Section One of the Sherman Antitrust Act? a. Brown shoe b. American Tobacco c. Coca-Cola & Dr. Pepper d. Socony Vacuum Oil

d.

Which of the following does not give an advantage to bigger(larger scale) firms? a. high set-up costs b. dimensional economies c. learning curves d. product differentiation

d.

Which of the following would NOT be subject to the rule of reason? a. a monopolization case where a firm controls 95% of the market b. a horizontal merger where two large firms join together c. a resale price maintenance case d. an agreement between competitors to charge reasonable prices

d.

vertical integration

deals with being integrated as a company for production having multiple different steps along the production chain

common pool problem

deals with oil, water, or anything that is a natural resource that people can get without going through a legal process

per se violation

deals with predatory pricing, it is totally illegal, inherently illegal

dimensional economies

deals with the dimensions of economies, larger area/volume is more efficient as the cost per sq foot goes down the larger it is

resale price maintenance

deals with vertical price fixing when a company sets a price their product must be sold at after they sell it. Telling the retailers a certain price to sell their product at(Dr. Miles/Leegin)

contract brewing

having a contract or paying to brew beer in another brewery(not having your own equipment), priced between microbreweries and national breweries. "Uses excess capital of regional breweries"

vertical product differentiation

having a variety of products all with different quality and standards, having some a lot nicer than others.

asset specificity

how specific an asset is, whether it has multiple uses or not, for example oil has multiple uses so it is not that specific

second sourcing

in electronics when a company is allowed to manufacture & sell components originally designed by another company(Intel licensing AMD to manufacture & sell microprocessors

contestable market

markets that have no entry fees or exit fees or barriers, they are free to enter or exit

fracking

the process of injecting liquid at high pressure into subterranean rocks, boreholes, etc. so as to force open existing fissures and extract oil or gas.

vertical merger

when a company acquires another company along its vertical chain of production that is not at the same level, example is a car manufacturer purchasing a tire company(Brown Shoe)

tying

when a company ties or combines products to be solely sold together, forcing consumers to have to buy both products not just one

consent decree

when both parties agree to drop the case and come to a mutual agreement

Section Two Antitrust case

1906 standard oil case as they practiced economies of scale and they monopolized, in the end they were broken up

CAFE standards

Corporate Average Fuel Economy this was in the 70s when the government made it so cars would be more fuel efficient so they set standard for gas mileage

RBOC

Regional Bell Operating Companies-when AT&T was split they had this as one of their divisions. They were known as the baby bells doing local calls until Telecommunications Act of 1996