Deck 4: Antitrust Law

Question 1

The purpose of the federal antitrust laws is to control private economic power by promoting and encouraging competition. Explain why competition is valued.

Answer 1

Competition is believed to 1) keep costs and prices lower and competition higher; 2) encourage product and service innovations and efficient allocation of resources; and 3) give consumers broader choices in the marketplace. In short, competition maximizes consumer welfare.

Question 2

As part of its commitment to be a "one stop garden gnome and glass ball conglomerate" GGGBU starts a service called the gnome placement agency. For a fee, a GGGBU employee will come to a customer's home and install the garden gnome or glass ball in the most attractive spot in the customer's garden. GGGBU prices the service based on the number of competitors in the market: the more competitors, the lower the price and vice versa. Would the Robinson-Patman Act cover this type of pricing discrimination?

A) Yes. Price discrimination is defined as charging different prices for similar goods.
B) No. Under the Robinson-Patman Act, the market would be considered homogeneous.
C) Yes. The Robinson-Patman Act limits the factors a company can use to set prices.
D) No. The Robinson-Patman Act only covers goods, not services.

Answer 2

D

Question 3

Jim agreed with a company in a neighboring state that was in the trash removal and recycling business that they would not compete with each other. They do not currently compete with each other, and the local nature of the trash removal business makes it unlikely that they ever would compete, even in the absence of the agreement. Does this agreement violate federal antitrust laws?

A) Yes, if the companies are located within 50 miles of each other.
B) Yes, the agreement would be a vertical restraint of trade.
C) Yes, because any such agreement is automatically illegal, regardless of its impact on competition.
D) No, there is no horizontal restraint here.
E) No, the federal antitrust laws don't address interstate behavior.

Answer 3

D

Question 4

Explain the remedies available to the federal government for antitrust violations under the Sherman and FTC Acts.

Question 5

Because of its brilliant managers and hard working employees, Garden Gnomes and Glass Balls Unlimited GGGBU) manages to become the only manufacturer of glass balls and garden gnomes in the entire United States. Naturally, the lack of market participants prompts government concern. While the government regards the product market to include all garden ornaments, there is concern that GGGBU has at least attempted to monopolize the relevant market. Which of the following is NOT one of the elements the government has to prove if it wishes to be successful in its attempted monopolization claim?

A) That there is a dangerous probability GGGBU will be successful in monopolizing the market.
B) That GGGBU had the specific intent to monopolize.
C) That GGGBU has engaged in predatory or anticompetitive conduct.
D) That the intended monopolization will have negative economic effects.

Question 6

The federal government gets wind of Dave and Jim's plan and brings charges against Jim under the FTC Act. Jim calls you. He is worried that he might go to prison and assures you that it is not place for a trash man of his character. Should Jim worry about criminal charges?

A) Yes. The government will press for criminal charges in such a blatant anticompetitive agreement.
B) No. Dave was the instigator of the agreement, so only he could be criminally liable.
C) Yes. It doesn't matter that Dave was the instigator, Jim still faces criminal charges.
D) No. There are no criminal sanctions under the FTC Act.

Question 7

Which standard would a court use to determine if Dave and Jim violated federal antitrust laws?

A) The rule of reason standard.
B) The per se standard.
C) The "quick look" analysis.
D) The Robinson-Patman standard.

Question 8

A, B, and C, national manufacturers of tea kettles, orally agree that due to the ruinous competition in the market place, they will establish a reasonable price to charge their customers and that none of them will sell below that price. Their behavior is illegal.

Question 9

GGG has set up a geographic distribution system to promote its products and also to make sure that intrabrand pricing competition is as limited as possible. Will courts uphold such agreements?

A) No, geographic limitations are reviewed under a per se standard.
B) No, except in cases where the company can show that it absolutely necessary for the company's success.
C) Yes, territorial limitations are reviewed under the rule of reason and are generally upheld.
D) Yes, as long as the territories correspond to natural boundaries and dividing lines.

Question 10

It is illegal per se for franchisors to set both minimum and maximum prices at which their franchisees may sell.

Question 11

Gigantic Corp. has just entered a new market that is dominated by many small firms serving different geographic areas. Gigantic Corp. has determined that it can take a large share of the market over 75%) by using a national distribution model and national branding. Sure enough, Gigantic Corp. comes to dominate the market, and the smaller companies complain to the DOJ that they have been harmed and that Gigantic is trying to form a monopoly. Has Gigantic violated the antitrust laws?

Question 12

Which of the following is NOT a remedy available against a corporation under federal antitrust laws?

A) Monetary damages.
B) Injunctive relief.
C) Criminal sanctions.
D) Imprisonment.

Question 13

Gary's Garden Gnomes, Inc. GGG) makes garden gnomes. Gary has distribution agreements with companies throughout the United States. Gary, in an effort to stimulate the garden gnome market in the U.S., sets a maximum resale price on all gnomes. Is Gary's maximum price policy a per se violation of the Sherman Act?

A) Yes, manufacturers cannot limit resale prices.
B) No, pricing violations are prosecuted under the FTC Act.
C) Yes, but only if one of the distributors first initiated the action.
D) No, maximum price setting is not a per se violation.

Question 14

If a manufacturer believes a retailer does not offer a reasonable return policy to consumers, the manufacturer may refuse to sell to that retailer without violating the federal antitrust laws.

Question 15

Describe how courts determine the relevant market for purposes of applying the federal antitrust statutes. Also discuss the factors courts consider relevant.

Question 16

GGG has decided to form a joint venture with the Garden Glass Ball Co. GGB). The two companies name the joint venture Garden Gnomes and Glass Balls Unlimited GGGBU). GGG thinks that it will be able to sell gnomes to glass ball fanatics and GGB thinks the gnome fans will love the glass balls. Both sides like the possible synergies. As part of its marketing strategy, the joint venture decides to deal with just one pedestal supplier for both products. Both GGB and GGG have pedestal suppliers, so one of the suppliers has to go. The joint venture makes its decision and the losing supplier brings an antitrust action. What would be the antitrust violation the supplier would most likely claim?

A) Restraint of trade.
B) Group boycott.
C) Vertical market allocation.
D) Creation of a monopoly.

Question 17

As part of GGG's garden gnome marketing strategy, it requires its distributors to purchase a garden gnome pedestal with each gnome. The distributors don't have to sell each gnome with a pedestal, however. The distributors argue that this constitutes an illegal tying agreement. Which of the following is NOT a factor in determining if a tying agreement violated antitrust laws?

A) Whether the tying and tied products are two separate products.
B) Whether the products are reasonably interchangeable with other products in the market.
C) Whether the seller posses sufficient economic power in the tying market to be able to restrain competition in the tying market.
D) Whether the arrangement involves a "not insubstantial" amount of interstate commerce.

Question 18

Billy Bob owns and operates Billy Bob's Towing and Impounding in Tulsa, Oklahoma. Billy Bob is not the only towing operation in town. Across town, Slade operates the Purple Porpoise Towing Company. If there is anything Billy Bob hates more than an illegally parked car, it's when he sees a Purple Porpoise truck towing a car in what he considers "his" part of town.

Question 19

Dave isn't too worried about the Section 1 Sherman Act charge. He knows that he and Jim never formally wrote out an agreement on their various schemes, and he knows that he never told anyone about it. Do you think Dave should be concerned about Sherman Act charges?

A) No. Without written proof of an agreement the government will not be able to prove its case.
B) Yes. The government can show the existence of an agreement through circumstantial evidence.
C) Yes. The government doesn't need to show that there was agreement to prove a Section 1 violation.

Question 20

Dave owns a trash removal and recycling company named Dave's Trash Heep. He only has one competitor in the trash removal market, Jim, of Jim's Junkyard Dogs, but he thinks that one competitor is one too many. Dave meets with Jim and they agree to divide the town into two separate districts. Each person agreed only to pick up trash in his own district. There was no procompetitive effect from allocating the town between them. What type of antitrust violation have Dave and Jim engaged in?

A) A vertical restraint.
B) A horizontal restraint.
C) Price discrimination.
D) All of the above.
E) None of the above.

Question 21

If a manufacturer believes a retailer does not offer a reasonable return policy to consumers, the manufacturer may refuse to sell to that retailer without violating the federal antitrust laws.

Question 22

K, L, and M, beer distributors, agree amongst themselves as to a territorial allocation of markets in the Midwest, and agree that none will distribute beer products in a market allocated to another. This restraint on trade will be evaluated under the rule of reason standard.

Question 23

D, E, and F, national manufacturers of chewing gum, each agree not to charge their consumers more than 75 cents per pack. Their behavior is illegal.

Question 24

It is illegal per se for franchisors to set both minimum and maximum prices at which their franchisees may sell.