Deck 21: Antitrust Policy and Regulation

Question 1

The rule of reason in antitrust applications means that if a firm has a dominant share of the market, it stands to reason that it will exploit its monopoly power to gain an unfair advantage over its rivals.

Answer 1

False

Question 2

Unfair advertising practices are investigated by the Federal Trade Commission.

Answer 2

True

Question 3

The U.S. Justice Department, the Federal Trade Commission, state attorneys general, and injured private parties can independently file charges against firms under the Sherman Act.

Answer 3

True

Question 4

The Consumer Product Safety Commission engages in social regulation, rather than industrial regulation.

Question 5

The legal cartel theory indicates that in any industry where market demand and the long-run average total cost curve intersect close to the latter's minimum, government regulation is mandatory and desirable.

Question 6

Antitrust policy pertains to government regulation of firms' prices within selected industries, such as utilities.

Question 7

A conglomerate merger is a merger between firms at different stages of the production process of a product, such as a merger between a flour milling company and a baking company.

Question 8

The Americans with Disabilities Act of 1990 is an example of industrial regulation.

Question 9

Monopolization is illegal under

Question 10

The Celler-Kefauver Act made vertical mergers legal, provided each firm does not have more than 30 percent of its relevant market.

Question 11

Tying agreements are contracts by which retailers agree to charge the prices that manufacturers set on branded goods.

Question 12

"Behavioralists" in antitrust applications believe that a firm that dominates a market is not necessarily behaving unfairly.

Question 13

Proposed ergonomics regulations are an example of industrial regulation (rather than social regulation).

Question 14

All price discrimination is deemed illegal in antitrust legislation.

Question 15

The Celler-Kefauver Act outlawed interlocking directorates.

Question 16

The government and courts have not been consistent in interpreting and enforcing antitrust laws over the years.

Question 17

Anticompetitive mergers are illegal under provisions of the Clayton Act (as amended).

Question 18

If a market is defined more broadly, then the chances that firms in that market will be found to be violating antitrust laws based on having a monopoly structure will increase.

Question 19

The regulation of natural monopolies has been criticized because it creates a tendency for regulated firms to use too much labor and too little capital in the production process.

Question 20

The cornerstone of antitrust policy in the United States is generally considered to be the Sherman Antitrust Act of 1890.

Question 21

According to the legal cartel theory of regulation, firms desire to have government regulation because it protects them from competition.

Question 22

An industry has five firms, each with a market share of 20 percent. There is no foreign competition, entry into the industry is difficult, and no firm is on the verge of bankruptcy. If two of the firms in the industry seek to merge, this action would most likely be opposed by the government because the Herfindahl index for the industry is

A)2,000 and the merger would increase the index by 500.
B)2,000 and the merger would increase the index by 800.
C)2,500 and the merger would increase the index by 500.
D)2,500 and the merger would increase the index by 1200.

Question 23

The table shows market shares of firms in hypothetical industries. Assume these are distinct industries with no buyer-seller relationships or competition among them. A merger between Firm 2 in Alpha and Firm 3 in Beta would be a

A)conglomerate merger.
B)vertical merger.
C)diagonal merger.
D)horizontal merger.

Question 24

The Sherman Act was designed to

A)exempt commercial banks from the antitrust laws.
B)make interlocking directorates legal.
C)prohibit misleading and antisocial advertising.
D)make monopoly and acts that restrain trade illegal.

Question 25

Public regulation rather than public ownership has been the primary means used in the United States to ensure that the behavior of natural monopolists is socially acceptable.

Question 26

Movie producers A, B, and C secretly meet and agree to release their summer blockbuster films in sequence, rather than at the same time. The U.S. Justice Department learns of the agreement and files an antitrust suit. The federal government would most likely file charges under the

A) Competitive firms A, B, and C meet and agree to charge a common price.
B) Competitive firms D and E, each with 35 percent market shares, merge into a single firm.
C) Competitive firms F and G independently charge lower prices to frequent customers than to occasional customers.
D) Large dominant firm H forces buyers to purchase its product X in order to buy its popular product Y.

Question 27

One good example of a government agency involved mainly in social regulation is the Food and Drug Administration.

Question 28

The table shows market shares of firms in hypothetical industries. Assume these are distinct industries with no buyer-seller relationships or competition among them. The industry with the least market power as measured by the Herfindahl index is

A)Delta.
B)Beta.
C)Alpha.
D)Kappa.

Question 29

Suppose the firms in a six-firm industry have market shares of 32, 20, 16, 16, 10, and 6 percent, respectively. The Herfindahl index for the industry is

A)1,936.
B)2,072.
C)84.
D)2,020.

Question 30

Supporters of social regulation contend that it has provided net benefits to society in the form of greater safety, a better environment, and less discrimination.

Question 31

Social regulation consists of regulating the behavior of people in society in order to promote the safety and harmony in neighborhoods.

Question 32

Suppose the courts declare that XYZ Corporation violated the antitrust laws and as a result ABC Corporation lost $200 million of profits. XYZ Corporation will have to pay ABC Corporation a monetary award of

A)$200 million.
B)$66.7 million.
C)$300 million.
D)$600 million.

Question 33

Most economists conclude that deregulation has reduced prices and led to more competition in deregulated industries.

Question 34

If the government regulates a natural monopoly and sets a "fair return" pricing policy, then the regulated firm will have greater incentive to improve its operating efficiency.

Question 35

The table shows market shares of firms in hypothetical industries. Assume these are distinct industries with no buyer-seller relationships or competition among them. The government would be most likely to challenge a merger between

A)Firm 1 in Alpha and Firm 6 in Delta.
B)Firms 3 and 4 in Beta.
C)Firms 1 and 2 in Kappa.
D)Firm 4 in Alpha and Firm 3 in Kappa.

Question 36

Strict enforcement of antitrust laws will generally complement the economic objective of encouraging new technologies that require large amounts of capital investment.

Question 37

All of the following can file antitrust charges under the Sherman Act except

A)the U.S. Justice Department.
B)state attorneys general.
C)injured private parties.
D)the Federal Energy Regulatory Commission.

Question 38

Which of the following is least likely to violate the Sherman Act or the Clayton Act?

A)Competitive firms A, B, and C meet and agree to charge a common price.
B)Competitive firms D and E, each with 35 percent market shares, merge into a single firm.
C)Competitive firms F and G independently charge lower prices to frequent customers than to occasional customers.
D)Large dominant firm H forces buyers to purchase its product X in order to buy its popular product Y.

Question 39

Which one of the following acts declared "every contract, combination . . . or conspiracy, in restraint of trade or commerce among the several states . . . to be illegal"?

A)the Wheeler-Lea Act
B)the Federal Trade Commission Act
C)the Sherman Act
D)the Interstate Commerce Act

Question 40

The table shows market shares of firms in hypothetical industries. Assume these are distinct industries with no buyer-seller relationships or competition among them. The Herfindahl index for Alpha is

A)2,600.
B)100.
C)2,500.
D)5,000.

Question 41

Tying agreements

A)establish common boards of directors for previously competing firms.
B)obligate a purchaser of product X to also buy product Y from the same seller.
C)allow manufacturers to specify the retail prices of their products.
D)prohibit firms from selling their products outside of specified geographic areas.

Question 42

The antitrust laws are enforced by the

A)Federal Bureau of Investigation.
B)Antimonopoly Court of Appeals.
C)Federal Justice Department and the Federal Trade Commission.
D)Department of Commerce.

Question 43

The antitrust laws are based on the

A)creative destruction view of competition.
B)idea that competition leads to greater economic efficiency than does a monopoly.
C)view that nonprice competition should be strictly regulated by government.
D)view that all negative externalities should be eliminated by government action.

Question 44

Which of the following gave the Federal Trade Commission responsibility to protect the public against false and misleading advertising?

A)Celler-Kefauver Act of 1950
B)Wheeler-Lea Act of 1938
C)Clayton Act of 1914
D)Sherman Act of 1890

Question 45

The Clayton Act of 1914

A)outlawed price discrimination, tying contracts, acquisition of stocks of competing corporations, and interlocking directorates that lessen competition.
B)prohibited unfair or deceptive acts or practices in commerce that tend to reduce competition.
C)outlawed vertical and conglomerate mergers.
D)prohibited one firm from acquiring the assets of another when the effect was to limit competition.

Question 46

The main purpose of the antitrust laws is

A)to encourage firms to produce where P > MC.
B)to eliminate both negative and positive externalities.
C)to prevent the monopolization of industries.
D)to regulate natural monopolies.

Question 47

The Sherman Act

A)was declared unconstitutional in 1895.
B)provided for government regulation of the railroads.
C)declared monopoly and restraints of trade to be illegal.
D)exempted the railroad and communications industries from the antitrust laws.

Question 48

Suppose Slow Ketchup requires that, as a condition of purchase, all restaurants using its product must buy and make available its new sales product. This arrangement is an example of

A)price-fixing.
B)an interlocking directive.
C)a tying contract.
D)price discrimination.

Question 49

A function of the Federal Trade Commission is to

A)investigate instances of faulty and misleading advertising.
B)establish railway rates for interstate railroads.
C)ban or recall unsafe consumer products.
D)prevent insider trading in securities markets.

Question 50

Which of the following is directly illegal under the Sherman Act?

A)price discrimination
B)tying contracts
C)price-fixing
D)interlocking directorates

Question 51

The Celler-Kefauver Act of 1950

A)modified patent legislation by reducing the number of years over which a patent is applicable.
B)prohibited any firm from acquiring the real assets of another firm where the effect was to lessen competition.
C)declared all conglomerate mergers to be illegal.
D)prohibited any firm from buying the stock of another firm where the effect was to lessen competition.

Question 52

Which one of the following is not prohibited by the original Clayton Act?

A)the purchase of the stocks of rival firms that lessens competition
B)the purchase of the assets of rival firms that lessens competition
C)an exclusive dealer or tying agreements that lessen competition
D)price discrimination that lessens competition

Question 53

Which of the following made monopoly and restraints of trade criminal offenses against the federal government?

A)Celler-Kefauver Act of 1950
B)Wheeler-Lea Act of 1938
C)Clayton Act of 1914
D)Sherman Act of 1890

Question 54

Which of the following amended the Clayton Act's prohibition against mergers that substantially lessen competition?

A)Celler-Kefauver Act of 1950
B)Wheeler-Lea Act of 1938
C)Clayton Act of 1914
D)Sherman Act of 1890

Question 55

Responsibility for enforcing the antitrust laws rests

A)with the Interstate Commerce Commission.
B)with both the Department of Justice and the Federal Trade Commission.
C)solely with the Federal Trade Commission.
D)solely with the Department of Justice.

Question 56

Price-fixing

A) creative destruction view of competition.
B) idea that competition leads to greater economic efficiency than does a monopoly.
C) view that nonprice competition should be strictly regulated by government.
D) view that all negative externalities should be eliminated by government action.

Question 57

Which of the following laws prohibited mergers by stock acquisition if the effect was to lessen competition?

A)Celler-Kefauver Act of 1950
B)Wheeler-Lea Act of 1938
C)Clayton Act of 1914
D)Sherman Act of 1890

Question 58

The Celler-Kefauver Act of 1950

A)outlawed price-fixing.
B)amended the Sherman Act.
C)amended the Clayton Act.
D)created the Civil Aeronautics Board (CAB).

Question 59

Tying contracts are illegal under the

A)Wagner Act of 1935.
B)Clayton Act of 1914.
C)FTC Act of 1914.
D)Celler-Kefauver Act of 1950.

Question 60

Suppose the courts declare that XYZ Corporation violated the antitrust laws and as a result ABC Corporation lost $100 million of profits. XYZ Corporation will have to pay ABC Corporation a monetary award of

A)$100 million.
B)$33.3 million.
C)$150 million.
D)$300 million.

Question 61

Which of the following is most likely to increase the Herfindahl index of a particular industry?

A)a horizontal merger between two of the industry's largest firms
B)a vertical merger between one of an industry's largest firms and one of the many input suppliers in the resource market
C)a conglomerate merger involving one of the industry's major firms
D)an agreement by all the industry firms to divide up the market among them

Question 62

Suppose a court rules that the ABC Corporation is in violation of the antitrust laws because it produces 70 percent of the output of its industry. This decision is consistent with the

A)U.S. Steel case.
B)Alcoa case.
C)behavioralist approach to antitrust.
D)legal cartel theory of regulation.

Question 63

The "rule of reason" indicated that

A)if less than four firms account for three-fourths of an industry's sales, the industry is in violation of the Sherman Act.
B)social regulation should not be enforced unreasonably so that costs exceed benefits.
C)the mere possession of monopoly power is a violation of the antitrust laws.
D)only contracts and combinations that unreasonably restrain trade violate the antitrust laws.

Question 64

In the Microsoft antitrust case, the federal government said in essence that

A)the mere presence of monopoly violated the Sherman Act, irrespective of Microsoft's behavior.
B)Microsoft was a "bad monopoly."
C)Microsoft was generally a "good monopoly" but that its tying contracts involving Internet Explorer violated the Clayton Act.
D)the case was similar to the U.S. Steel case of 1920.

Question 65

The Alcoa case

A)was based on an approach to antitrust based on monopoly structure.
B)struck down the treble damages provision of the antitrust laws.
C)called for federal regulation of any industry with a four-firm concentration ratio in excess of 50 percent.
D)decision was consistent with an approach focusing on monopoly behavior.

Question 66

In which of the following cases did the final court decision result in a breakup of the firm into competing businesses?

A)Microsoft case
B)Standard Oil case
C)U.S. Steel case
D)DuPont cellophane case

Question 67

In which of the following cases was the firm found not guilty of violating the Sherman Act?

A)Standard Oil case
B)Microsoft case
C)Alcoa case
D)DuPont cellophane case

Question 68

Interlocking directorates are

A)legal if the two firms have small market shares.
B)illegal under provisions of the Federal Trade Commission Act of 1914.
C)illegal under provisions of the Celler-Kefauver Act of 1950.
D)illegal under provisions of the Clayton Act of 1914.

Question 69

The government was successful in gaining an antitrust conviction in the

A)U.S. Steel case.
B)IBM case.
C)Alcoa case.
D)DuPont cellophane case.

Question 70

A merger between an automobile manufacturer and a maker of automobile tires is an example of a

A)conglomerate merger.
B)horizontal merger.
C)vertical merger.
D)tying contract.

Question 71

Which of the following findings would be the most likely to lead the U.S. Justice Department to block a corporate merger under terms of the Clayton Act?

A)a buyer-seller relationship between the two firms
B)a high pre-merger Herfindahl index in the industry and a large boost in the index because of the merger
C)a low pre- and post-merger concentration ratio in the industry
D)evidence that one of the firms is highly unprofitable

Question 72

In the U.S. Steel case, the court ruled that

A)even though a firm's behavior might be legal, the mere possession of monopoly power was in violation of the Sherman Act.
B)only monopolies that unreasonably restrain trade are subject to antitrust action under the Sherman Act.
C)when made by dominant firms, tying contracts are illegal, per se.
D)the company violated the Clayton Act and therefore should be dissolved into several competing firms.

Question 73

Restructuring of a major industry resulted from the

A)U.S. Steel case.
B)AT&T case.
C)IBM case.
D)DuPont cellophane case.

Question 74

In which of the following pairs of antitrust cases did the firms prevail against the antitrust charges leveled against them?

A)the Alcoa case and the Microsoft case
B)the U.S. Steel case and the Alcoa case
C)the DuPont cellophane case and the U.S. Steel case
D)the U.S. Steel case and the Microsoft case

Question 75

In the Alcoa case of 1945, the courts held that

A)the mere possession of monopoly power is a violation of the antitrust laws.
B)only contracts and combinations that unreasonably restrain trade are in violation of the Sherman Act.
C)retail and wholesale firms are exempt from antitrust legislation.
D)firms that sell more than one-half of their output overseas are exempt from antitrust.

Question 76

The Federal Trade Commission

A)is empowered to hold public hearings to investigate unfair practices.
B)prohibits interlocking directorates in interstate industries.
C)regulates airline fares.
D)regulates such transportation industries as railroads and trucking.

Question 77

In which of the following sets of antitrust cases did the government gain convictions?

A)the U.S. Steel case and the Microsoft case
B)the Alcoa case and the Microsoft case
C)the DuPont cellophane case and the AT&T case
D)the U.S. Steel case and the Alcoa case

Question 78

In the U.S. Steel case of 1920, the courts held that

A)the structure of an industry is more important than its behavior in determining violations of the antitrust laws.
B)any firm that faces substantial import competition is exempt from the antitrust laws.
C)although U.S. Steel possessed monopoly power, it had not violated the Sherman Act because it had not unreasonably used that power.
D)the fact that U.S. Steel possessed monopoly power was a violation of the Sherman Act.

Question 79

The decision in the U.S. Steel case

A)reflected a monopoly behavior approach to antitrust.
B)reflected a monopoly structure approach to antitrust.
C)divided U.S. Steel into a number of smaller companies.
D)ruled that U.S. Steel had engaged in illegal price-fixing.

Question 80

The basic issue in the DuPont cellophane case was

A)whether trade crossed state lines.
B)defining the relevant market.
C)structure versus behavior.
D)the rule of reason.