Legal - Quiz 19 - Antitrust Law and Promoting Competition

The body of federal and state laws and statutes protecting trade and commerce from unlawful restraints, price discrimination, price fixing, and monopolies.

Antitrust Laws

An agreement under which a seller forbids a buyer to purchase products from the seller's competitors.

Exclusive Dealing Contract

Monopoly power in and of itself constitutes the offense of monopolization under Section 2 of the Sherman Act. True False

False

Resale price maintenance agreements are always considered per se violations of Section 1 of the Sherman Act. True False

False

State Municipal Foreign Federal courts have exclusive jurisdiction over antitrust cases brought under the Sherman Act.

Federal

The refusal to deal with a particular person or firm by a group of competitors; prohibited by the Sherman Act

Group Boycott

A merger between two firms that are competing in the same market.

Horizontal Mergers

A term generally used to describe a market in which there is a single seller or a limited number of sellers.

Monopoly

The ability of a monopoly to dictate what prices and quantities offered in a given market.

Monopoly Power

A type of anticompetitive agreement—such as a horizontal price-fixing agreement—that is considered to be so injurious to the public that there is no need to determine whether it actually injures market competition; rather, it is in itself (per se) a violation of the Sherman Act.

Per se Violation

Setting prices in such a way that two competing buyers pay two different prices for an identical product or service.

Price Discrimination

An agreement between competitors in which the competitors agree to fix the prices of products or services at a certain level; prohibited by the Sherman Act.

Price-fixing agreement

An agreement between a manufacturer and a retailer in which the manufacturer specifies the minimum retail price of its products. Resale price maintenance agreements are illegal per se under the Sherman Act.

Resale Price Maintenance Agreement

Any contract or combination that tends to eliminate or reduce competition, effect a monopoly, artificially maintain prices, or otherwise hamper the course of trade and commerce as it would be carried on if left to the control of natural economic forces.

Restraints of Trade

A test by which a court balances the positive effects (such as economic efficiency) of an agreement against its potentially anticompetitive effects.

Rule of Reason

.Section 2 Section 7 Section 9 Section of the Clayton Act prohibits price discrimination.

Section 2

XXXX of the Clayton Act prohibits exclusive-dealing contracts when they substantially lessen competition or tend to create a monopoly. Section 2 Section 3 Section 7 Section 9

Section 3

XXXX of the Clayton Act is the statutory authority for preventing mergers that could result in monopoly power. Section 2 Section 3 Section 7 Section 9

Section 7

XXXX of the Clayton Act deals with interlocking directorates. Section 2 Section 3 Section 6 Section 7 Section 8

Section 8

The first major federal law intended to prevent monopolies was the XXXX.

Sherman Antitrust Act.

The most famous trust in the late 1800s was the Union Pacific Railroad Trust Farmington Oil Trust Standard Oil Trust Chevron Oil Trust.

Standard Oil Trust

A dominant market share may be the result of good business judgment or the development of a superior product. True False

True

Foreign persons, including foreign governments, may sue under U.S. antitrust laws in U.S. courts. True False

True

In most monopolization cases, intent may be inferred from evidence that the firm had monopoly power and engaged in anticompetitive behavior. True False

True

Some vertical restraints are per se violations of whereas others are judged under the rule of reason. True False

True

An agreement between a buyer and a seller in which the buyer of a specific product or service becomes obligated to purchase additional products or services from the seller.

Tying Arrangement

A situation that exists when a small number of firms share the market for a particular good or service.

Vertical Mergers

The acquisition by a company at one stage of production of a company at a higher or lower stage of production (such as its supplier or retailer).

Vertical Mergers

Any restraint of trade created by agreements between firms at different levels in the manufacturing and distribution process.

Vertical Restraint

A firm that carries out two or more functional phases—such as manufacture, distribution, retailing—of a product.

Vertically Integrated Firms

Best Burger, Speedy Grill, and Fast Food are competitors in the New York City area. They have a secret agreement not to purchase any beef from Northeast Beef Growers Cooperative. Their agreement is tying arrangement a group boycott a horizontal market division price discriminationItem.

a group boycott

Both Section 1 and Section 2 of the Sherman Act seek to curtail market practices that result in undesired monopoly pricing and output behavior. a. True b. False

a. True

The more narrowly a product market is defined, the greater the chance that the plaintiff can prove a high degree of market power. a. True b. False

a. True

To prevail in an exclusive-dealing contract case, a plaintiff must present affirmative evidence that performance of the agreement will foreclose competition and harm consumers. a. True b. False

a. True

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. horizontal market division. b. refusal to deal. c. vertical agreement. d. resale price maintenance agreement.

a. horizontal market division.

Silicon Corporation, which controls 40 percent of the computer-chip market in the United States, merges with Micro Processors, Inc., which controls 15 per-cent of the same market. This merger is a violation​ a. if the result more clearly concentrates the market and makes it more difficult for potential competitors to enter the market. b. under no circumstances. c. only if the result more clearly concentrates the market. d. only if the result makes it more difficult for potential competitors to enter the market

a. if the result more clearly concentrates the market and makes it more difficult for potential competitors to enter the market.

Wonder Bread begins selling is 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, Wonder Bread raises the price of its bread by 300%. This type of action is known as a. predatory pricing. b. restraint of trade. c. price discrimination. d. monopoly.

a. predatory pricing.

A court deems an agreement between Silver Saddles Saddlery and Time Tested Tack, Inc. to be a per se violation of the Sherman Act. The court is a. prevented from determining whether the agreement's benefits outweigh its anticompetitive effects. b. required to apply the rule of reason. c. required to unanimously decide whether the agreement's benefits outweigh its anticompetitive effects. d. required to issue a formal complaint against Silver Saddles and Time Tested Tack.

a. prevented from determining whether the agreement's benefits outweigh its anticompetitive effects.

To fall under the Sherman Act, an activity must a. substantially affect interstate commerce. b. involve international trade. c. involve monopolization. d. promote competition.

a. substantially affect interstate commerce.

Under Section 2 of the Sherman Antitrust Act, the size in relation to the market is what matters because monopoly involves the power to XXXX.

affect prices.

Which of the following is not a per se violation of Section 1 of the Sherman Act?​ a. A group boycott b. A trade association c. A price-fixing agreement d. A market division

b. A trade association

Market power relates to a firm's ability to change its output anytime it wants to. a. True b. False

b. False

To establish a violation of Section 2, a plaintiff must only prove one of the elements of monopolization, either monopoly power or intent to monopolize. a. True b. False

b. False

Omega Sewing Machines is a nationally known manufacturer, having started in business almost 50 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. not allowed under the rule of reason because Betty has not demonstrated need for the restriction. b. allowed under the rule of reason. c. an attempted monopolization. d. prohibited by Section 1 of the Sherman Act as a per se violation.

b. allowed under the rule of reason

North Mining Company and South Excavation Company agree to abide by the decisions of East Coast Financial Corporation as to their respective levels of production, markets, and prices, effectively reducing competition and increasing profits. This is most likely a. an innovative, legally efficient approach to doing business. b. an illegal restraint on trade. c. an outdated, but legal business trust. d. a common, legal, time-honored type of business arrangement.

b. an illegal restraint on trade.

Holiday Baskets, Inc., refuses to buy products from GMO Farms. This can violate antitrust laws if the refusal​ a. provides no economic benefits for consumers. b. is likely to have an anticompetitive effect on a particular market. c. is likely to increase competition. d. results in lower prices for consumers.

b. is likely to have an anticompetitive effect on a particular market.

Sunrich Company can process solar energy into an inexpensive fuel for internal combustion engines. As an innovator in its market, Sunrich currently has the power to affect the price of its product. This is​ a. price discrimination. b. market power. c. price-fixing. d. predatory pricing.

b. market power.

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. is eligible to sue only for money damages because the Department of Justice prevailed in the criminal action. b. may recover treble damages and attorneys' fees. c. may also sue for punitive damages. d. has no additional recourse against Northern because the criminal trial was successful.

b. may recover treble damages and attorneys' fees

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. a violation of Section 1 of the Sherman 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. c. a violation of the Clayton Act because charging different rates is a per se violation. d. 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.

Honey Pots is one of three suppliers of portable toilets located near the Oregon-California border. All three companies operate in both states. Honey Pots charges different prices depending on the distance to the locale and the number of units rented. This is: a. a violation of the Clayton Act because charging different rates is a per se violation. b. not a violation of the Clayton Act because Honey Pots 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.

b. not a violation of the Clayton Act because Honey Pots can justify charging the different rates

Spa Selectiva Company makes and sells beauty salon supplies. By selling its product at prices substantially below the normal cost of production, Spa Selectiva hopes to drive its competitors from the market. This is​ a. market power. b. predatory pricing. c. price discrimination. d. price-fixing.

b. predatory pricing.

When applying the market-share test, a court often determines the "relevant market" for the product by considering the: a. number of competitors. b. product markets and the geographic markets in which the goods or services are sold. c. ease with which new companies can enter a market.

b. product markets and the geographic markets in which the goods or services are sold.

Imperio Caffeine Corporation makes and sells coffee under a variety of brand names. Imperio wants to merge with Java Company, its main competitor. In weighing a challenge to the deal, a court looks at the relevant product market. This most likely includes coffee and​ a. products that are not identical but are related, such as spin-offs. b. products that are sometimes substituted for coffee. c. products with identical attributes only. d. no other products.

b. products that are sometimes substituted for coffee.

Healthcare Device, Inc., has exclusive control over the market for its product. Healthcare Device's market power is most likely​ a. a per se violation. b. subject to further evaluation. c. not a violation. d. "an unfair or deceptive act or practice."

b. subject to further evaluation.

Precious Metals Corporation, a raw materials vendor, sells its commodities in certain quan-ti-ties to Quarry Refining Company for a certain price but charges Rich Assets, Inc., a Quarry com-peti-tor, a higher price. This is most likely a violation of​ a. the Federal Trade Commission Act. b. the Clayton Act. c. the Sherman Act. d. no antitrust law.

b. the Clayton Act.

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, its competitors, and the Federal Trade Commission only. b. Mango and its competitors only. c. Mango, its competitors, the Federal Trade Commission, and the U.S. Department of Justice. d. the Federal Trade Commission and U.S. Department of Justice only.

c. Mango, its competitors, the Federal Trade Commission, and the U.S. Department of Justice

The differences between Section 1 and Section 2 of the Sherman Act include that: a. Section 2 applies to only two or more persons. b. Section 1 requires three or more persons. c. Section 2 can apply to one person.

c. Section 2 can apply to one person.

An antitrust action is brought against Tri-State Transport Company, al-leging the offense of attempted monopolization. To be guilty of this of-fense, Tri-State's attempt must have​ a. a distant possibility of success. b. a deadly guaranty of success. c. a dangerous probability of success. d. a distinct improbability of success

c. a dangerous probability of success.

Edgy Engine Components, Inc., a maker of vehicle parts, refuses to sell to Fidgety Fix-It, Inc., a national vehicle service firm. Edgy Engine convinces Greasy Motor Parts Company, a competitor, to do the same. This is a. a market division. b. a joint venture. c. a group boycott. d. an exclusive-dealing contract.

c. a group boycott.

To acquire monopoly power in its market, Global Positioning Systems, Inc., sets its prices substantially below the normal costs of production. Under antitrust law, this is​ a. a per se violation. b. a violation if its competitors set similar prices. c. a violation if it thereby acquires monopoly power. d. not a violation.

c. a violation if it thereby acquires monopoly power.

A relevant product market includes: a. many dissimilar products. b. just those similar products in the immediate area of the manufacturer. c. all products produced by all firms that have identical attributes.

c. all products produced by all firms that have identical attributes

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 U.S., which causes the price of steel in the U.S. to substantially increase. This type of agreement a. falls outside of U.S. regulation. b. must be addressed by an international trade association. c. can be a violation of the Sherman Act. d. can only be considered a violation under Brazil's laws.

c. can be a violation of the Sherman Act.

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. allowed by antitrust laws because it is a superior product. b. known as a price maintenance agreement and is a per se violation of Section 1 of the Sherman Act. c. known as a price maintenance agreement and is subject to the rule-of-reason test to determine whether it is a violation of Section 1 of the Sherman Act. d. exempt from antitrust laws because it does not constitute an interference with competition.

c. known as a price maintenance agreement and is subject to the rule-of-reason test to determine whether it is a violation of Section 1 of the Sherman Act.

Vineyard owners and wine producers join together to form Vino Veritas, a trade association. This​ a. is a per se violation of Section 1 of the Sherman Act. b. creates illegal territorial or customer restrictions. c. may be legal if it is sufficiently beneficial to both the association and the public. d. is an innovative, legally efficient approach to doing business.

c. may be legal if it is sufficiently beneficial to both the association and the public.

Midwest Manufacturers is successfully prosecuted for antitrust violations by the Department of Justice and the judge imposes criminal sanctions against Midwest for the injuries it caused its competitor Great Lakes, Inc. Great Lakes: a. has no additional recourse. b. may sue for punitive damages. c. may recover treble (triple) damages and attorney's fees.

c. may recover treble (triple) damages and attorney's fees.

To drive its competitors out of a certain geographic segment of its market, Superior Piping, Inc., sets the prices of its products below cost for the buyers in that area. This is​ a. predatory pricing. b. business judgment. c. price discrimination. d. predatory bidding.

c. price discrimination.

When applying the rule of reason to determine whether an agreement violates Section 1 of the Sherman Act, a court will not consider​

c. the effect of the agreement on international trade.

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 illegal, because it places unreasonable restrictions on trade. c. vertical merger and will most likely be legal, because it will not prevent competitors of either firm from competing in the market. d. horizontal merger and will most likely be illegal, because it constitutes foreclosure of the market.

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

Predatory bidding occurs: a. when a buyer bids down the price of an input so low that its competitors can buy everything. b. when a buyer bids down the price so low that the seller goes out of business. c. when a buyer bids up the price of an input too high for its competitors to pay.

c. when a buyer bids up the price of an input too high for its competitors to pay.

Because the Internet is so important today, the XXXX of geographic markets is less relevant than before.

concept

The primary issue with a monopoly is the ability to XXXXl and XXXX the market price of a product or service.

control, affect

When transportation XXXX are significant, the geographic market is more limited.

costs

An antitrust action is brought against Tri-State Transport Company, alleging the offense of attempted monopolization. To be guilty of this offense, Tri-State's attempt must have​ a. a distinct improbability of success. b. a deadly guaranty of success. c. a distant possibility of success. d. a dangerous probability of success.

d. a dangerous probability of success.

Predatory pricing occurs when: a. a firm raises its price over those of its competitors. b. a firm's market share decreases. c. competitors agree to charge the same price for similar goods. d. a firm prices sells its products substantially below cost to drive out competition.

d. a firm prices sells its products substantially below cost to drive out competition.

Farmed Crops Corporation offers to sell its wheat substitute to Gluten-Free, Inc., only if Gluten-Free agrees to buy all of the wheat substitute that it needs from Farmed Crops, even though there are other sellers from whom Gluten-Free could buy. This is​ a. business acumen. b. an exclusive-dealing contract. c. price discrimination. d. a tying arrangement

d. a tying arrangement.

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. a unilateral refusal to deal. c. price discrimination. d. an exclusive-dealing contract.

d. an exclusive-dealing contract.

Platte River Meat Packing Company maintains a 3 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. actionable as a per se attempt to monopolize the meat packing industry c. not actionable because antitrust laws do not punish unsuccessful attempts to monopolize, but only those that succeed. 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.

To fall under the Sherman Act, an activity must a. involve monopolization. b. involve international trade. c. promote competition. d. substantially affect interstate commerce.

d. substantially affect interstate commerce.

A suit is filed against AgriSeeds Corporation, alleging that the firm commit-ted the offense of monopolization. To determine whether AgriSeeds has monopoly power requires looking at a. the company's size alone. b. the marketing practices of the company's competitors. c. production methods and marketing techniques. d. the relevant geographic market and the relevant product market.

d. the relevant geographic market and the relevant product market.

The term monopoly is defined as "control of a single market by a single entity" in XXXX.

economic theory

For products that are sold nationally, the geographic boundaries of the market can XXXX the entire United States.

encompass

Trade associations XXXX information among members and represent the members' business interests before governmental bodies.

exchange

In concentrated industries, trade associations have often been used as a means to XXXX anticompetitive actions, such as fixing prices or allocating markets.

facilitate

Monopolies and other restraints on trade primarily are governed by XXXX.

federal law.

Section 1 of the Sherman Act prohibits price discrimination exclusive dealing horizontal and vertical restraints tying arrangements

horizontal and vertical restraint

Pure-Bred and Hearty-Made are two makers of dog food and they agree that Pure-Bred will sell its lamb and rice dog food in New Jersey, but not Delaware and vise versa for Hearty-Made. Their agreement is a vertical agreement horizontal market division resale price maintenance agreement refusal to deal

horizontal market division

The geographic market is that section of the country within which a firm can XXXX its price without attracting new sellers or without losing many customers.

increase

Antitrust laws are direct descendants of common law actions that promote discrimination limit restraint of trade prohibit nuisance limit breach of contract.

limit restraint of trade

The critical consideration in most merger cases is geographic concentration ability to price fix market concentration vertical integration.

market concentration

The power of a firm to control the market price of its product. A monopoly has the greatest degree of market power.

market power

To determine if a monopoly exists, the U.S. Supreme Court has defined monopolization as involving the following two elements: 1. The possession of monopoly power in the relevant XXXX; and 2. The XXXX acquisition or maintenance of the power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident

market, willful

Section 2 of the Sherman Antitrust Act applies to XXXX.

one person or two or more persons.

Each of the following may violate the Clayton Act except: price discrimination price fixing tying arrangements exclusive dealings contracts

price fixing

All of the following are exempt from federal antitrust laws except labor union professional baseball professional football insurance companies

professional football

Generally, the XXXX is applied to many of these horizontal actions.

rule of reason

A monopoly is a market in which there is a XXXX or a XXXX.

single seller, very limited number of sellers.

Trade associations also frequently are involved in setting regulatory XXXX to govern the industry profession

standards

Section 1 of the Sherman Antitrust Act requires XXXX.

two or more persons.