Chapter 27: Antitrust Law (quiz 97.5/100)

A concentrated industry is one in which either a single firm or a small number of firms carry out the separate functions of the chain of production. True False

False

A horizontal merger occurs when a company at one stage of production acquires a company at a higher or lower stage of production. True False

False

A price-fixing agreement that is reasonable does not violate antitrust law. True False

False

A territorial or customer restriction is currently considered a per se violation of antitrust law. True False

False

An exclusive-dealing contract is an agreement in which a seller agrees not to sell to a buyer's competitors. True False

False

Any activity that substantially affects interstate commerce falls outside the scope of antitrust laws. True False

False

Market power is the ability of a firm to enter a given market. True False

False

Only the U.S. Department of Justice can prosecute violations of all of the antitrust laws. True False

False

Predatory pricing is a legitimate marketing practice, not a form of anticompetitive conduct. True False

False

Big Corp. and Giant Corp. both compete in the tire manufacturing industry. The two companies want to merge. A merger between these two companies would be called: a. a horizontal merger. b. an attempted monopolization merger. c. a consolidation merger. d. a vertical merger.

a. a horizontal merger.

Natural Gas, Inc., and Olio Energy Company refine and sell natural gas. To limit the supply of natural gas on the market and thereby raise prices, Natural Gas and Olio Energy agree to buy "excess" supplies from dealers and "dispose" of it. The agreement between Natural Gas and Olio Energy is a. a horizontal restraint. b. a resale price maintenance agreement. c. a vertical restraint d. none of the choices.

a. a horizontal restraint.

Bill's Barber Supplies, Inc., is the major distributor of barber supplies in the state of Colorado. Bill's closest competitor is Dona's Beauty Products Company, another Colorado firm. They agree that Bill's will distribute its products in western Colorado and Dona's will distribute its products in the eastern part of the state. This is a. a market division. b. a group boycott. c. a tying arrangement. d. none of the choices.

a. a market division.

Frictionless Lubricant Corporation and Grease, Inc., are the principal suppliers of their product in their market. They agree that Frictionless will sell exclusively to retailers and Grease will sell exclusively to wholesalers. Under antitrust law, this is most likely a. a per se violation. b. a violation only if their competitors make similar deals. c. not a violation. d. a violation only if their customers agree to honor the deal.

a. a per se violation.

Office Warehouse Inc. and Paperclips Inc. are the chief competitors in their market. They agree that Office Warehouse will operate only east of the Mississippi River and Paperclips will operate only west of the waterway. Under antitrust law, this is most likely a. a per se violation. b. a violation only if their competitors make similar deals. c. a violation only if their customers agree to honor the deal. d. not a violation.

a. a per se violation.

Foreign Steel Exports, a company based in Brazil, colludes with other steel-export companies from around the world to agree on the price of steel sold in the United States, which causes the price of steel in the United States to substantially increase. This type of agreement: a. can be a violation of the Sherman Act. b. must be addressed by an international trade association. c. can only be considered a violation under Brazil's laws. d. falls outside of U.S. regulation.

a. can be a violation of the Sherman Act.

Ballard Corporation, a U.S. company, does business overseas. In France, which is a member of the European Union (EU), Ballard Corporation works with a French competitor to divide the markets within France to maximize sales for both companies. Ballard Corporation may: a. face charges of violating both U.S. antitrust laws and EU antitrust laws. b. face charges of violating only the EU antitrust laws because it is doing business in the EU. c. face charges of violating only the U.S. antitrust laws because it is a U.S. corporation. d. not face charges of violating either the U.S. antitrust laws or the EU antitrust laws because the United States has no jurisdiction over activities overseas, and the EU has no jurisdiction over U.S. companies.

a. face charges of violating both U.S. antitrust laws and EU antitrust laws.

Speedboat Corporation refuses to sell its products to Water World, Inc., a recreational water products dealership. This is a violation of antitrust laws if it a. has an anticompetitive effect on a particular market. b. results in lower prices for consumers. c. provides no economic benefits for consumers. d. is likely to increase competition.

a. has an anticompetitive effect on a particular market.

Smart Tablets, Inc., requires all distributors of its products to sell them at a specified minimum price. This is a violation of antitrust law a. if the anticompetitive effects outweigh the competitive benefits. b. under no circumstances. c. if the competitive benefits outweigh the anticompetitive effects. d. under any circumstances.

a. if the anticompetitive effects outweigh the competitive benefits.

The Association of Organic Food Producers, which does not include all organic farmers and ranchers, refuses to deal with any parties who do not carry the products of its members. This group boycott is a. subject to analysis under the rule of reason. b. a legal restraint of trade. c. a per se violation of antitrust law. d. a situation that neither restrains trade nor harms competition.

c. a per se violation of antitrust law.

Omega Sewing Machines is a nationally known manufacturer, having started in business almost fifty years ago. Omega and Betty's Sewing Store agree that Betty will be the only dealer in her state that will sell Omega machines. This type of agreement is most likely: a. prohibited by Section 1 of the Sherman Act as a per se violation. b. an attempted monopolization. c. allowed under the rule of reason. d. not allowed under the rule of reason because Betty has not demonstrated need for the restriction.

c. allowed under the rule of reason.

Kibble Bites and Chow Hound, two makers of dog food, agree that Kibble Bites will sell its lamb and rice dog food in New Jersey but not in Delaware, and Chow Hound will sell its lamb and rice dog food in Delaware but not in New Jersey. Their agreement is a: a. refusal to deal. b. resale price maintenance agreement. c. horizontal market division. d. vertical agreement.

c. horizontal market division.

To drive its competitors out of a certain geographic segment of its market, Fryin' Potatoes, Inc., sets the prices of its products below cost for the buyers in that area. This is a. a refusal to deal. b. predatory bidding. c. price discrimination. d. none of the choices.

c. price discrimination.

Fine Food Company, Gourmet Cheeses, Inc., and Healthy Eats, Inc. agree to exchange information and share advertising. This trade association is a. a legal restraint of trade. b. a deal that neither restrains trade nor harms competition. c. subject to analysis under the rule of reason. d. a per se violation of antitrust law.

c. subject to analysis under the rule of reason.

Northern Manufacturers is prosecuted for antitrust violations by the Department of Justice, which wins its case. The judge agrees to impose criminal sanctions against Northern for the injuries it caused its competitor, Mini Lake, Inc. Mini Lake: a. has no additional recourse against Northern because the criminal trial was successful. b. may also sue for punitive damages. c. is eligible to sue only for money damages because the Department of Justice prevailed in the criminal action. d. may recover treble damages and attorneys' fees.

d. may recover treble damages and attorneys' fees.

The possession of monopoly power is the only element needed to establish the offense of monopolization. True False

False

The purpose of antitrust law is to reduce competition. True False

False

A firm may be a monopolist even though it is not the sole seller in a market. True False

True

A horizontal restraint is any agreement that in some way restrains competition between rival firms competing in the same market. True False

True

A joint effort by business persons to obtain legislative action can be exempt from the antitrust laws. True False

True

A seller is prohibited from charging different prices to competing buyers for identical goods or services. True False

True

A seller is prohibited from making an exclusive-dealing contract if the effect is to tend to create a monopoly. True False

True

Any agreement that restricts output among competitors is a per se violation of Section 1 of the Sherman Act. True False

True

Attempted monopolization is a violation of antitrust law. True False

True

The relevant product market includes only products that, although produced by different firms, have identical attributes. True False

True

U.S. antitrust laws may be applied to protect foreign consumers and competitors from violations committed by U.S. business firms. True False

True

Taco Heaven, Burrito Joint, and Fast Fajitas are competitors in the Boston area. They have a secret agreement not to purchase any beef from Northwest Beef Growers' Cooperative. Their agreement is: a. a group boycott. b. a horizontal market division. c. a tying arrangement. d. price discrimination.

a. a group boycott.

Glassworx Corporation has exclusive control over the market for its products. Under antitrust law, this is a. a per se violation. b. not a violation. c. a violation if it acquired this power through "anticompetitive means." d. a violation if it acquired this power through "business judgment."

c. a violation if it acquired this power through "anticompetitive means."

Mango Corporation believes that Melon Corporation engages in anticompetitive behavior in an attempt to drive Mango and its other competitors out of the market. Antitrust laws can be enforced against Melon by a. Mango and Melon's customers. b. any federal government agency. c. any business with a significant impact on interstate commerce. d. Mango and Melon's other competitors.

d. Mango and Melon's other competitors.

Big American Oil Company joins with a foreign cartel to control the price of oil. If the cartel has a substantial effect on U.S. commerce, a suit for violation of U.S. antitrust laws can be brought against a. Big American Oil and the foreign cartel. b. the foreign cartel. c. Big American Oil. d. all of the choices.

d. all of the choices.

Discount Retail Corporation may be engaging in conduct that violates the Sherman Act. To bring an action against the firm requires that its conduct have a significant impact on a. intrastate commerce. b. international commerce. c. internet commerce. d. interstate commerce.

d. interstate commerce.

Kimmy owns a small scrapbooking store in her community. She sells paper, glue, and other scrapbooking items. She decides one day to lower her prices a little bit because she wants to boost sales and market share so that she can take a vacation. She currently has a 12% market share. Under the Sherman Act, this likely: a. is not a violation of U.S. antitrust laws. b. is a violation of Section 1 because she is attempting to reduce competition. c. is a violation of Section 3 of the Clayton Act because she is attempting to exclude competitors. d. is a violation of Section 2 because she is intentionally attempting to drive her competitors out of business.

a. is not a violation of U.S. antitrust laws.

Natural Gas, Inc., and Olio Energy Company refine and sell natural gas. To limit the supply of natural gas on the market and thereby raise prices, Natural Gas and Olio Energy agree to buy "excess" supplies from dealers and "dispose" of it. The Natural Gas and Olio Energy deal is a. a legal restraint of trade. b. a per se violation of antitrust law. c. a deal that neither restrains trade nor harms competition. d. subject to analysis under the rule of reason.

b. a per se violation of antitrust law.

Congress enacts a statute to outlaw a specific type of anticompetitive business agreement. Like other laws that regulate economic competition, this law is referred to as a. a suppressive restraint on trade b. an antitrust law. c. an interstate commerce act. d. a federal trade commission act.

b. an antitrust law.

City Manufacturing Corporation conditions shipments of its products to Exurb Stores, Inc., on Exurb's agreement not to buy products from Regional Works Company, City's competitor. This is a. a tying arrangement. b. an exclusive-dealing contract. c. a price-fixing agreement. d. none of the choices.

b. an exclusive-dealing contract.

DynaCorp is in the computer software market. The company's actions demonstrate an intent to monopolize the market. Under Section 2 of the Sherman Act, a firm's intent to monopolize a market: a. may be used to rebut the presumption that it monopolized a market. b. is an element of the violation and must be proved by the party pursuing the claim. c. may be demonstrated by a showing of the superiority of its product. d. is irrelevant; domination of the market itself proves a violation of the act.

b. is an element of the violation and must be proved by the party pursuing the claim.

In a well-established market, ComBuilt produces the nation's best-selling bookkeeping software. The program is far superior to all other similar programs. ComBuilt requires all its distributors and retailers to sell the program at a specified price. This is: a. exempt from antitrust laws because it does not constitute an interference with competition. b. known as a price maintenance agreement and may violate Section 1 of the Sherman Act under the rule of reason test. c. allowed by antitrust laws because it is a superior product. d. known as a price maintenance agreement and is a per se violation of Section 1 of the Sherman Act.

b. known as a price maintenance agreement and may violate Section 1 of the Sherman Act under the rule of reason test.

Bee Well is one of three suppliers of portable toilets located near the border between Oregon and California. All three companies operate in both states. Bee Well charges different prices to different customers depending on the distance to the locale and the number of units rented. This is: a. not a violation of Section 1 of the Sherman Act because Bee Well can justify charging the different rates. b. not a violation of the Clayton Act because Bee Well can justify charging the different rates. c. a violation of Section 1 of the Sherman Act because charging different rates is a per se violation. d. a violation of the Clayton Act because charging different rates is a per se violation.

b. not a violation of the Clayton Act because Bee Well can justify charging the different rates.

Amazing Bread begins selling its bread at a loss by cutting its price by more than one-half in an attempt to gain a considerable market share over its competitors. Once its competitors are out of the picture, Amazing Bread raises the price of its bread by 300%. This type of action is known as: a. monopoly. b. predatory pricing. c. price discrimination. d. restraint of trade.

b. predatory pricing.

Golf & Tennis LLC makes and sells golf clubs, tennis racquets, and related sporting goods. By selling its products at prices substantially below the normal cost of production, Golf & Tennis hopes to drive its competitors from the market. This is a. market power. b. predatory pricing. c. price discrimination. d. none of the choices.

b. predatory pricing.

Soft Drink Corporation is charged with violating the Sherman Act through conduct subject to the rule of reason. When applying the rule of reason in this situation, a court will not consider a. the purpose of the agreement. b. the effect of the agreement on international trade. c. the parties' market ability to implement the agreement. d. the potential effect of the agreement on competition.

b. the effect of the agreement on international trade.

A suit is filed against DrillBits Corporation, alleging that the firm committed the offense of monopolization. To determine whether DrillBits has monopoly power requires looking at a. DrillBits' size alone. b. the relevant market c. DrillBits' production methods and marketing techniques. d. the price of a share of DrillBits' stock.

b. the relevant market

Seth owns and runs a small shoe factory. He finds a source of leather that is perfect for the new styles he has designed. To ensure himself a steady supply of the leather, he wants to buy the leather-processing plant. Seth's proposal is known as a: a. horizontal merger and will most likely be legal because Seth will have over 80 percent of the market if he goes through with the merger. b. vertical merger and will most likely be legal because it will not prevent competitors of either firm from competing in the market. c. vertical merger and will most likely be illegal because it places unreasonable restrictions on trade. d. horizontal merger and will most likely be illegal because it constitutes foreclosure of the market.

b. vertical merger and will most likely be legal because it will not prevent competitors of either firm from competing in the market.

Platte River Meat Packing Company maintains a three percent share of the beef-packing industry in the United States. Last year, it launched an unsuccessful effort to harm its competitors and garner monopoly share of the beef-packing industry. Platte River's efforts are: a. actionable because Platte River possessed intent to harm its competitors regardless of whether its efforts were successful. b. not actionable because antitrust laws do not punish unsuccessful attempts to monopolize, only those that succeed. c. actionable as a per se attempt to monopolize the beef-packing industry. d. not actionable because Platte River lacked sufficient market power to ensure a dangerous probability of success and consequent serious threat of monopolization.

d. not actionable because Platte River lacked sufficient market power to ensure a dangerous probability of success and consequent serious threat of monopolization.

Organosis is a company in the healthcare industry. The company engages in trade practices that violate antitrust laws. Organosis is subject to criminal prosecution by: a. either the Department of Justice or the Federal Trade Commission under either the Sherman Act or the Clayton Act. b. either the Department of Justice or the Federal Trade Commission under the Sherman Act. c. the Federal Trade Commission (FTC) under the Clayton Act. d. the Department of Justice (DOJ) under the Sherman Act.

d. the Department of Justice (DOJ) under the Sherman Act.

Disc & Shoe Brakes Corporation, a brake manufacturer, sells its products to Eastside Motors, a retailer, at lower prices than it charges Fast Brake, a competitive retailer. This price discrimination is legal a. unless there is no effect on a competitor. b. unless its effect is to cause a competitor a loss of any business c. under any circumstances. d. unless its effect is to substantially lessen competition.

d. unless its effect is to substantially lessen competition.