Chapter 23

The Promotions R4U company was the only business remaining in the U.S. that produced custom "floaty" ink pens. The floaty pen, which contains an oil-filled segment with movable objects, has been a popular promotional item for well over fifty years. Promotions R4U produced a record batch of floaty pens to commemorate the total solar eclipse of August 2017. The pens, which showed a dark shadowy moon slowly covering a fiery sun as you held them vertically, were offered to retailers in the direct path of the eclipse. A major national retailer purchased 20,000 floaty pens at the wholesale price of $3.35 per unit. A smaller retail store in southern Illinois, one of the best points to view the event, also purchased floaty pens from the company. Because the small retailer was buying a reduced volume of pens—only 250—the promotions company, due to higher delivery and processing costs, changed their wholesale price to $3.95 per unit. Both the national retailer and smaller store will be selling the pens in the same community during the total solar eclipse event. Has Promotions R4U violated the Robinson-Patman Act? a. Yes, because the stores selling the pens will be in direct competition. b. Yes, because the items are identical. c. No, because discounts for high volume retailers are allowable under the Act. d. No, because the costs of serving the small retailer are higher.

d. No, because the costs of serving the small retailer are higher.

After acquiring the RazRSleek brand name and electric shaver assets, Flyy controlled 55 percent of the electric shaver industry in the United States. Chaser, a competitor, claimed that the acquisition of such a large market share was a violation of the law because the increased competition from Flyy would decrease Chaser's profits. Does Chaser have a valid claim? a. No, unless Flyy excluded competitors and controlled prices. b. Yes, because the merger is subject to the rule of reason under the Clayton Act. c. Yes, because Flyy engaged in predatory pricing which lowered Chaser's profits. d. No, because a company must have 80 percent of the market share to be a monopoly.

a. No, unless Flyy excluded competitors and controlled prices.

Big oil companies Texaco and Shell decided to form two joint ventures—Motiva and Equilon—to refine and market gasoline in the United States. The companies decided to set equal wholesale prices through their joint venture, essentially eliminating competition between them in their downstream operations, such as refining crude oil and marketing finished products. 23,000 gas station owners filed suit against Texaco and Shell, claiming that the companies were raising prices and engaging in price-fixing. What would be Texaco's and Shell's best defense to this allegation? a. The joint ventures are competing in the open market against other oil companies. b. The fixed prices are reasonable. c. There was no written agreement to set prices for gasoline. d. The gas station owners lack standing to sue because they haven't made purchases from the joint ventures yet.

a. The joint ventures are competing in the open market against other oil companies.

The New York Times sent a reporter undercover as a worker for a major international produce supplier and ran a series of front-page stories detailing the company's poor working conditions, extended hours, and low salaries. The negative report caused public outrage, and as a result, an association of supermarkets boycotted the supplier's produce. The change in suppliers caused slightly higher produce prices, but the supermarkets received praise from consumers across the country who were happy to pay a little more to see some action taken against the produce supplier. Have the supermarkets violated antitrust law? a. Yes, because their refusal to deal has harmed competition. b. Yes, because they have engaged in price fixing. c. No, because they have a right to decide with whom they will do business. d. No, because consumers have not been harmed - and in fact, they support the supermarkets' decision.

a. Yes, because their refusal to deal has harmed competition.

Jane's Boutique would like to buy some of Holistic Health Co.'s popular nail polish for resale. Holistic Health tells Jane that if she buys less than 100 units, she must also buy a small order of their new vitamin product. Jane has no interest in selling vitamins in her boutique. If Jane wanted to challenge Holistic Health's requirement as an illegal tying arrangement, what additional facts would she have to prove? a. Holistic Health charges higher prices for the vitamins when they are tied to the nail polish. b. Holistic Health has significant power in the nail polish market and is shutting out a significant portion of the vitamin market through the tying arraignment. c. Holistic Health has a monopoly in the nail polish market and significant power in the vitamin market in Jane's geographic area. d. Both that Holistic Health charges higher prices for the vitamins when they are tied to the nail polish and Holistic Health has a monopoly in the nail polish market and significant power in the vitamin market in Jane's geographic area. e. None of these.

b. Holistic Health has significant power in the nail polish market and is shutting out a significant portion of the vitamin market through the tying arraignment.

Paul's Pen Co. manufacturers and sells an inexpensive ball-point pen. Stacy's Stationery purchases the pens for $.25 each in quantities of 1,000. Stacey's discovered that a national chain, a competitor of Stacey's, buys the pen at $.20 for 1,000. If Stacy's Stationery sues Paul's Pen Co. for price discrimination: a. Stacy's Stationery will win since price discrimination is a per se violation. b. Stacy's Stationery will win unless Paul's Pen Co. can justify the price differential. c. Paul's Pen Co. will win if it can prove that it has been selling to the national chain continuously at the cheaper rate. d. Paul's Pen Co. will win if it can prove that it did not intend to economically harm Stacy's Stationery.

b. Stacy's Stationery will win unless Paul's Pen Co. can justify the price differential.

Fifty bakeries in New York formed an association. The association signed an agreement with stores throughout the city, under which the stores agreed to purchase bread only from a bakery assigned to them by the association. The association also decided to raise the retail price of bread from 75 to 85 cents. All the association's members printed the new price on their bread sleeves. Are the bakeries in violation of the antitrust laws? a. Yes, because this is an illegal tying arrangement under § 1 of the Sherman Act. b. Yes, because this exclusive dealing agreement has an anticompetitive effect according to the rule of reason. c. Yes, because this is a predatory pricing mechanism which is illegal under § 1 of the Sherman Act. d. Yes, because this is a vertical maximum price-fixing agreement that is a per se violation of the Sherman Act.

b. Yes, because this exclusive dealing agreement has an anticompetitive effect according to the rule of reason.

MyCab launches its business in San Francisco, offering on-call transportation services through a smart phone app that allows users to call a car from wherever they are in the city and have it arrive within 15 minutes. MyCab is wildly popular and within months two competing companies, Smart Taxi and iRide, have launched similar services and apps. Six months later, MyCab merges with iRide to combine iRide's luxury car features with MyCab's more user-friendly app. If Smart Taxi claims this merger is an antitrust violation, is Smart Taxi correct? a. No, because there are valid business reasons for the merger. b. Yes, this is an illegal horizontal merger. c. No, unless Smart Taxi can prove that the merger is having an anticompetitive effect. d. Yes, if the resulting company after the merger has more than 50 percent of the market share.

c. No, unless Smart Taxi can prove that the merger is having an anticompetitive effect.

Smalltown has two family-owned hardware stores that have been in business for years. Major Hardware opens one of its superstores in Smalltown, advertising extremely low prices, which are at below cost. Because Major owns stores nationally, it is able to keep prices extremely low until it forces both of the family-owned stores out of business. Once Major is the only hardware store in town, it raises its prices enough to make up for its former losses and to make some additional profit. Has Major violated any antitrust laws? a. Yes, Major has engaged in price fixing. b. Yes, Major has engaged in bid rigging. c. Yes, Major has engaged in predatory pricing. d. No, Major has simply competed well against the smaller stores in an open market.

c. Yes, Major has engaged in predatory pricing.

Gary, Louise, and Brian, who each own competing gas stations in town, happen to see each other at a restaurant one morning and have breakfast together. While talking, they decide that they will all set their prices to the national average gas price. Have they committed an illegal act? a. Yes, but only if consumers complain. b. No, unless the national average is substantially higher than their previous prices. c. Yes, regardless of whether the price is fair to consumers. d. No, because the national average is a reasonable and fair price to consumers.

c. Yes, regardless of whether the price is fair to consumers.

EcoPower produces various types of renewable energy equipment, including solar panels. EcoPower sells and installs solar panels for a university in Wyoming for $2 million. One month later, EcoPower sells the same number of solar panels and installs them in an identical manner at a Massachusetts facility for $1.5 million. Has EcoPower violated antitrust laws? a. Yes, because the items sold are the same. b. Yes, EcoPower has engaged in market division. c. No, because the items sold are the same. d. No, if there are more competitors selling solar panels in Massachusetts.

d. No, if there are more competitors selling solar panels in Massachusetts.

Google is looking for a supplier of sturdy cell phones that can carry its popular Android operating system. Google strikes a deal with Samsung in which Samsung's cell phones will exclusively carry the Android system and Google will not allow any other cell phone manufacturers to carry its Android system. Is this deal legal? a. Yes, unless Google and Samsung also agreed to the price that consumers will pay for the cell phones. b. Yes. Deals like this used to be illegal, but Congress has since amended the Sherman Act to allow reciprocal dealing agreements. c. No. This deal will provide Google and Samsung with a monopoly of the cell phone market by illegal means. d. No. This deal will provide Google and Samsung with a significant share of the cell phone market, and they have agreed not to buy from others, making it an illegal reciprocal dealing agreement.

d. No. This deal will provide Google and Samsung with a significant share of the cell phone market, and they have agreed not to buy from others, making it an illegal reciprocal dealing agreement.

SignPro makes customized signs, posters, and other display materials for corporate and sporting events. SignPro orders its paper products and ink from one supplier for its corporate signs and uses another supplier for its sports signage. In return, the suppliers make SignPro's signature fonts, colors, and design templates available to SignPro consumers at no extra cost to the consumer. Is this arrangement legal? a. Yes, because SignPro and its suppliers have not agreed to set a particular price to consumers. b. No, because this is a vertical agreement to allocate customers. c. No, because market division is a per se violation. d. Yes, because the arrangement does not have an anticompetitive effect.

d. Yes, because the arrangement does not have an anticompetitive effect.