Business Law Chapter 42

A merger involving noncompeting firms producing unrelated goods and services is termed a:

conglomerate merger

The rule of reason test, under the Sherman Antitrust Act:

considers the makeup of a relevant industry.

In normal times, the economic community is best served by:

free competition in trade and industry.

Three of the airline companies agree that they will not go any lower than $100 each way for coast-to-coast tickets. This is:

horizontal price fixing

The definition of price-fixing includes agreements that:

may, among other things, depress prices, stabilize prices, and raise prices.

In enacting Section 2 of the Clayton Act, Congress was concerned with sellers who sought to harm or eliminate their competitors through:

price discrimination

The Supreme Court in the Leegin Creative Leather Products, Inc. v. PSKS, Inc. case, held that:

the rule of reason is the appropriate standard to judge vertical price restraints.

McDonald's Corporation grants to Bob a franchise in which he will be the only one who has the right to sell McDonald's products in his small hometown. Under the Sherman Act:

this will be tested under the rule of reason.

Which of the following is true in relation to market share and monopoly power?

A market share between 50 and 75 percent is, in itself, inconclusive in determining monopoly power.

In determining whether illegal monopolization has occurred and whether a firm has engaged in unfair conduct:

Courts do not agree on what constitutes unfair conduct. Any of the above approaches may be used.

T/F: A monopolistic market will produce fewer goods than a competitive market would, but price would not ordinarily be affected.

False

T/F: All price discrimination is illegal under the Robinson-Patman Act.

False

T/F: All tying arrangements are per se illegal.

False

T/F: An agreement between a manufacturer and a wholesaler is horizontal.

False

T/F: Failure to comply with Section 1, but not Section 2, of the Sherman Act is a criminal violation.

False

T/F: If a wholesaler gets a retail outlet for its goods through merger, this is a horizontal merger.

False

T/F: In determining market share, the relevant geographic market is the national market.

False

T/F: The main goal of antitrust regulation is to prevent competitive behavior among firms.

False

Under Section 1 of the Sherman Act, which of the following is illegal per se?

Horizontal market allocations.

The concerted action requirement of the Sherman Act Section 1:

May be established by an express agreement, is not met when a parent corporation and its wholly owned subsidiaries agree to a restraint in trade, and requires factors, additional to conscious parallelism, such as identical sealed bids from each competitor.

In an attempt to limit the power of large purchasers, Congress amended Section 2 of the Clayton Act in 1936 by adopting the:

Robinson-Patman Act

Sarreno Cheese Co. supplies mozzarella cheese to pizza restaurants at $1.50 per pound. In order to snare the business from one large pizza chain, Sarreno offers to sell them cheese at $1.25 per pound. This will violate the Robinson-Patman Act unless:

The pizza chain can already get the cheese for $1.25 elsewhere, Sarreno can show its price is justified because of a cost savings based on quantity, Sarreno lowers the price to all its customers

T/F: A "Vertical Restraint Index" is a measure of relative market share.

True

T/F: A restraint of trade may be classified as either horizontal or vertical.

True

T/F: Any violation of Section 2 of the Sherman Act constituting a conspiracy to monopolize would also constitute a violation of Section 1.

True

T/F: Characterizing a type of restraint as per se illegal significantly affects the prosecution of an antitrust suit.

True

T/F: If United Widgets lowers its price to all buyers of 10 or more widgets, it is not a violation of the Robinson-Patman Act.

True

T/F: In 1992 Horizontal Merger Guidelines were jointly issued by the Justice Department and the Federal Trade Commission.

True

T/F: One business by itself cannot violate Section 1 of the Sherman Act.

True

T/F: The Federal Trade Commission may issue a cease and desist order having the effect of an injunction.

True

T/F: The Justice Department has expanded its enforcement policy of the Sherman Act to cover foreign companies' conduct that harms U.S. exports.

True

T/F: The National Cooperative Research Act was passed to facilitate the use of joint ventures for joint research and development.

True

T/F: The Sherman Act prohibits contracts that unreasonably restrain trade.

True

T/F: The principal objective of antitrust law governing mergers is to maintain competition.

True

Which of the following occurs when the seller of a product, service, or intangible conditions its sale on the buyer's purchasing a second product, service, or intangible from the seller?

Tying agreement

The Clayton Act deals with which of the following provisions?

Tying contracts and mergers

In order for there to be a violation of Section 2 of the Sherman Act, in addition to monopoly power, the courts must find:

Unfair conduct or abuse of power

To determine "market share" requires knowledge of which of the following?

What other products are substitutable for the product, Where the product is sold, and How much of the product is sold.

A restraint involving collaboration among competitors at the same level in the chain of distribution is:

a horizontal restraint.

If the National Tax Accountants Professional Association (TAPA) has recommended that its members charge a minimum of $25 per hour for completing tax forms, this recommendation is probably:

a per se price fixing violation of the Sherman Act.

T/F: It is per se illegal under the Sherman Act for sellers to agree to a maximum price, but not a minimum price.

False

T/F: Monopoly power is tested by determining how big the corporation is in terms of total assets.

False

T/F: Section 1 of the Sherman Act does not prohibit concerted action.

False

T/F: Section 1 of the Sherman Act outlaws monopolies and attempts to monopolize.

False

T/F: Section 2 of the Sherman Act prohibits contracts, combinations, and conspiracies that restrain trade.

False

T/F: The Clayton Act weakened the Sherman Act by eliminating illegal acts that had previously been prohibited.

False

T/F: The Justice Department's and states' settlement with Microsoft, affirmed by the D.C. Circuit Court of Appeals in 2004, allowed Microsoft to remain one company and, among other things, allowed Microsoft to keep confidential the programming interfaces that its products rely on to link to Windows code.

False

T/F: The courts have interpreted the Sherman Act as prohibiting all monopolies.

False

Which of the following remedies is available under the Sherman Act?

Injunctions.

Which of the following is correct regarding the Clayton Act?

It deals with price discrimination, tying contracts, and mergers.

The 1992 and 1997 Horizontal Merger Guidelines:

None of the above

T/F: In the case of Eastman Kodak Co. v. Image Technical Services, Inc. the U.S. Supreme Court stated that to violate Section 2 of the Sherman Act, Kodak would have to possess monopoly power in the relevant market and willfully acquire or maintain that power, as distinguished from growing or developing as a consequence of a superior product, business acumen, or historic accident.

True

T/F: Some group boycotts are illegal per se while others are subject to the rule of reason.

True

T/F: The "rule of reason" requires the courts to balance the anticompetitive effects of behavior in restraint of trade with its positive effects on competition.

True

T/F: The Clayton Act exempts labor, agricultural, and horticultural organizations from all antitrust laws.

True

T/F: The validity, under antitrust law, of a joint venture depends on the competitors' purpose in forming it.

True

T/F: To find a violation of Section 2 of the Sherman Act, if sufficient monopoly power has been proved, the law must then show that the firm has engaged in unfair conduct.

True

T/F: Under the 2004 amendments, corporate offenders who violate Sections 1 or 2 of the Sherman Act face fines of up to $100 million per violation.

True

T/F: Under the 2004 amendments, individuals who violate the Sherman Antitrust Act, Sections 1 or 2, may be imprisoned for ten years and fined up to $1 million.

True

T/F: Under the Clayton Act, private parties can bring civil actions in federal court for treble damages and attorneys' fees.

True

T/F: Under the Sherman Act, price fixing is the primary and most serious example of a per se violation.

True

T/F: When the per se approach is inappropriate in a Section 1 Sherman Act case but the challenged conduct has obvious anticompetitive effects, courts may use an intermediate test which is a "quick look" rule of reason analysis.

True

If a small manufacturer of vacuum cleaners conditions the sales of its cleaners on the buyer's purchasing only that manufacturer's bags, under the Sherman Act this is:

a tying arrangement, which will be closely scrutinized by the law.

Agreements by which the seller or lessor of a product conditions the agreement upon the buyer's or lessee's promise not to deal in a competitor's goods are:

exclusive dealing arrangements.

If all milk producers in the area agree to set a minimum price for raw milk, this would be an example of:

horizontal price fixing.

Margaret tells the members of the Raleigh Association of Restaurant Owners that they will be able to get a better price on linen supplies (tablecloths, napkins) if they will deal with one supplier rather than split their business between two. They all know Margaret deals with Niagara Linen rather than Cayuga. Under the Sherman Act, if they all sign contracts with Niagara:

illegality may be implied from this conduct.

Failure to comply with Section 1 or 2 of the Sherman Act:

is a crime and can result in imprisonment, may subject an individual to a fine of up to $1 million per violation, and may subject a corporation to a fine of $100 million per violation.

The National Cooperative Research Act:

is designed to clear up uncertainty about the legality of joint ventures.

The National Cooperative Research Act provides that:

joint ventures in the research and development of new technology are to be judged under the rule of reason test.

Harry Jones at Jones Brothers Furniture Co. does not like the Brite Lamp Co. representative, so he decided that Jones Brothers would boycott Brite. Under the Sherman Act, this is:

no violation.

Conglomerate mergers have been challenged only when:

one of the merging firms would be highly likely to enter the other firm's market.

With tying arrangements, the courts may establish a seller's economic power by showing that:

the seller occupied a dominant position in the tying market, the seller's product enjoys an advantage not shared by its competitors in the tying market, and a substantial number of customers have accepted the tying arrangement and the only explanation for their willingness to comply is the seller's economic power in the tying market.

The manufacturer of Rubberware agrees to sell the distributor 1,000 boxes of 2-quart bowls only if he agrees to resell to the retailer at cost plus $1.10 per bowl and the retailer must agree to sell at no less than his cost plus $ .50 per bowl. This is:

vertical price fixing.