Deck 13: Antitrust and Regulation

Question 1

The Sherman Antitrust Act of 1890 is the federal antitrust law that prohibits:

A) monopolization and conspiracies to restrain trade.
B) mergers the substantially lessen competition.
C) exclusive dealing, tying contracts, and interlocking directorates.
D) unfair methods of competition in commerce.

Answer 1

A

Question 2

The Federal Trade Commission is charged with:

A) supervising cartels in the United States.
B) aiding small business in contract negotiations with foreign companies.
C) investigating unfair and deceptive trade practices.
D) approving contracts between businesses and government.

Answer 2

C

Question 3

Campbell Soup agrees to sell its brand to a grocery chain only if the chain also agrees to buy a minimum number of cases of its V-8 juice. This is an example of:

A) a resale price maintenance agreement.
B) a tying agreement.
C) exclusive dealing.
D) price discrimination.

Answer 3

B

Question 4

Interlocking directorates are illegal under the ____ whether or not the effect may be to substantially lessen competition.

A) Clayton Act
B) Robinson-Patman Act
C) Sherman Antitrust Act
D) Federal Trade Commission Act

Question 5

Which act of Congress declared tying contracts, exclusive dealing, and price discrimination illegal?

A) Celler-Kefauver Act.
B) Sherman Antitrust Act.
C) Clayton Act.
D) Robinson-Patman Act.

Question 6

The practice of firms temporarily reducing prices in order to eliminate competition is called:

A) competitive pricing.
B) predatory pricing.
C) discount pricing.
D) strategic pricing.

Question 7

The purchase of the assets of one steelmaker by another steelmaker might be a violation of the:

A) Clayton Act.
B) Federal Trade Commission Act.
C) Celler-Kefauver Act.
D) Robinson-Patman Act.

Question 8

Which of the following describes a tying contract?

A) The seller of one product requires the buyer to purchase some other product(s).
B) One firm buys the stock of a competing firm.
C) The directors of one company serve on the board of directors of another company in the same industry.
D) An agreement between a manufacturer and a retailer based on the condition that the retailer is not to carry any rival products of the manufacturer.

Question 9

To obtain a conviction for price fixing under the Sherman Antitrust Act, the government needs to prove:

A) only that an attempt to fix prices was made.
B) that there was a price-fixing agreement that actually lessened competition.
C) that there was a high concentration ratio for the industry.
D) that consumers were charged a higher price as a result of the price fixing.

Question 10

How did the Celler-Kefauver Act (CK Act) affect the nation's antitrust policy?

A) The CK Act strengthened the nation's approach to merger enforcement by amending the Clayton Act. Under the CK Act, purchasing assets with the cash of another company was a potential antitrust violation.
B) The CK Act strengthened the nation's approach to merger enforcement by making all conglomerate mergers illegal.
C) The CK Act strengthened the nation's policy toward predatory pricing by clarifying that pricing lower than marginal cost was an antitrust violation.
D) The CK Act weakened the nation's policy by creating a loophole in the Clayton Act making mergers easier.

Question 11

Which of the following would be illegal under the Clayton Act?

A) Executives from Nike and Reebok meet to fix the price of athletic shoes.
B) Ford and Firestone Tire agree to merge.
C) Xerox will only sell its copy and print machines if buyers agree to also buy a service contract.
D) Healthy Energy Bar Co. falsified a study showing the health benefits of its product and uses that study in its advertising.

Question 12

The antitrust case against IBM was dropped after 13 years of litigation because

A) the Celler-Kefauver Act was passed and it changed the relevant antitrust rules.
B) IBM proved that the firm did not commit bad acts.
C) antitrust laws shifted from a rule of reason to a per se rule.
D) new companies began competing in the market and the political environment changed to a less restrictive interpretation of antitrust laws.

Question 13

The primary purpose of antitrust legislation is to:

A) protect small business.
B) protect the competitiveness of U.S. business.
C) protect the prices of American-made products.
D) ensure American labor is paid a fair wage.

Question 14

Firms that place their assets in the custody of a board of trustees is called a(n):

A) utility.
B) oligopoly.
C) trust.
D) cartel.

Question 15

Ersatz Kreme will sell its filling to Hunky Donuts only if Hunky Donuts agrees not to buy filling from other suppliers. This is an example of:

A) price discrimination.
B) exclusive dealing.
C) a tying contract.
D) interlocking directorates.

Question 16

Officers of five large building-materials companies meet and agree than none of them will submit bids on government contracts lower than an agreed-upon level. This is an example of:

A) price fixing.
B) vertical restriction.
C) a tying contract.
D) an interlocking directorate.

Question 17

Which of the following would be illegal under the Robinson-Patman Act?

A) Ford and General Motors meet to fix the price of cars.
B) ExxonMobil and BP Oil elect the same person to their boards of directors.
C) General Mills and Kelloggs decide to merge.
D) ExxonMobil sells gas at a higher wholesale price to independent gas retailers than to ExxonMobil retailers.

Question 18

The most important weakness of the Sherman Antitrust Act was that:

A) the Supreme Court refused to enforce it.
B) it wasn't specific about the types of acts which would violate the law.
C) it didn't outlaw restraints of trade.
D) it was too complicated.

Question 19

Prior to 1914, did antitrust legislation have much effect on monopoly power in the United States? Why or why not?

Question 20

If a firm offers quantity discounts or special promotional allowances only to favored distributors and the effect is to substantially lessen competition, then it is in violation of the:

A) Clayton Act.
B) Robinson-Patman Act.
C) Sherman Antitrust Act.
D) Celler-Kefauver Act.

Question 21

According to the per se rule, when would the courts find a monopoly in violation of the Sherman Antitrust Act?

A) Always-monopoly is per se illegal under the rule of reason.
B) Only when the monopoly created negative externalities.
C) Only when the monopoly engaged in illegal business practices.
D) Only when the monopoly charged excessively high prices.

Question 22

The Utah Pie case was brought under which of the following laws?

A) The Sherman Antitrust Act.
B) The Federal Trade Commission Act.
C) The Robinson-Patman Act.
D) The Celler-Kefauver Act.

Question 23

The rule of reason refers to the interpretation of the courts that dominant firms should be broken up because of their:

A) market share dominance, regardless of their business practices.
B) illegal business practices, not based on their market dominance alone.
C) marginal cost pricing, rather than average cost pricing.
D) average cost pricing, rather than marginal cost pricing.

Question 24

During this century, court decisions on antitrust have:

A) changed from per se, to rule of reason, and back to per se.
B) changed from rule of reason, to per se, and back to rule of reason.
C) always emphasized per se.
D) always emphasized rule of reason.

Question 25

The Department of Justice has challenged the merger of two firms, and the case has ended up in the Supreme Court. The two firms argue that they will not use their monopoly power to raise prices or to cut output. Under what judicial standard would their merger be allowed, and under what judicial standard would their merger be disallowed?

Question 26

The per se rule was an antitrust law guideline that emphasized ____ over ____.

A) price; quantity
B) quantity; price
C) behavior; size
D) size; behavior

Question 27

In which of the following cases was the firm a natural monopoly at the beginning of the case but no longer a natural monopoly when the case resolved?

A) IBM case
B) Alcoa case
C) Standard Oil case
D) AT&T case

Question 28

The per se rule refers to the interpretation of the courts that dominant firms should be broken up because of their:

A) market share of dominance.
B) history of illegal business practices.
C) price discrimination practices.
D) tying practices.

Question 29

When the court determines that a firm's size alone is sufficient to find that it violated antitrust laws, this criterion is called:

A) natural monopoly.
B) economies of scale.
C) per se.
D) rule of reason.

Question 30

According to the rule of reason, when would the courts find a monopoly in violation of the Sherman Antitrust Act?

A) Always-monopoly is per se illegal under the rule of reason.
B) Only when the monopoly created negative externalities.
C) Only when the monopoly engaged in illegal business practices.
D) Only when the monopoly charged excessively high prices.

Question 31

The landmark antitrust case which established that size alone is not sufficient to prove an antitrust violation is the:

A) U.S. Steel case.
B) Brown Shoe case.
C) Von's Grocery case.
D) ALCOA case.

Question 32

The government's court case against Microsoft is an example of:

A) predatory pricing.
B) antitrust enforcement.
C) economic regulation.
D) the regulatory dilemma.

Question 33

In the 1945 Alcoa antitrust case, the Court found Alcoa:

A) not guilty of violating the Sherman Antitrust Act because it was a good monopoly.
B) did not have a good reason for having a large market share, so found it guilty.
C) guilty because its firm size was a per se violation of antitrust laws.
D) not guilty because it did not engage in any illegal or unfair acts.

Question 34

The rule of reason was an antitrust law guideline that emphasized the importance of ____ over ____.

A) price; quantity
B) quantity; price
C) behavior; size
D) size; behavior

Question 35

Although U.S. Steel controlled nearly 75 percent of the domestic iron and steel industry, in 1920 the Supreme Court ruled that the firm was not in violation of the Sherman Antitrust Act because

A) there was no evidence of abusive behavior. The Court applied t he rule of reason in this case.
B) 75 percent of the market is not high enough to constitute monopoly power.
C) there was no evidence of abusive behavior. The Court applied the per se rule in this case.
D) the domestic iron and steel industry is a natural monopoly. The Court decided regulation was needed.

Question 36

Under a rule of reason approach, an act is illegal:

A) only if it is shown to result in an anticompetitive outcome.
B) if two parties merge.
C) if a firm engages in price discrimination.
D) if two firms engage in price fixing.

Question 37

In the Utah Pie case, the economic effect of the Supreme Court decision was to:

A) prohibit the merger of two small pie companies.
B) encourage competition by ruling that the national competitors had engaged in illegal price discrimination.
C) encourage competition by ruling that the national competitors had not engaged in illegal price discrimination.
D) discourage competition by national competitors in the Salt Lake City market.

Question 38

Under a per se approach to the antitrust laws,

A) the government must prove some anticompetitive outcome from the act.
B) large size alone can be an antitrust violation.
C) the action will pass antitrust scrutiny if it is shown to be reasonable.
D) the only real question is whether the prices charged are reasonable.

Question 39

In which antitrust case did the Supreme Court begin to apply the per se rule to determine whether a firm was in violation of the Sherman Antitrust Act?

A) The Standard Oil case.
B) The Alcoa case.
C) The IBM case.
D) The MIT case.

Question 40

Under a rule of reason approach, which of the following would be legal in the United States?

A) The merger of Paco's Taqueria and Maria's Mexican Bistro, independent restaurants in the unconcentrated sit-down restaurant market.
B) Price fixing between IBM and Compaq.
C) Ford and General Motors electing the same person to their boards of directors.
D) Kellogg's and General Mills collude to drive Quaker Oats out of the business.

Question 41

The Interstate Commerce Commission (ICC) was established in 1887 to regulate:

A) banking.
B) railroads and all surface transportation.
C) nationwide advertising.
D) interstate sales of food and drugs.

Question 42

An economist would be  most  likely to advocate for regulation under which of the following scenarios?

A) It was politically popular.
B) Scientific evidence suggested regulation was an appropriate solution.
C) There was a strong philosophical argument in favor of regulation.
D) Never. Economists find all regulation to be inefficient.

Question 43

Martha lives near a paper mill. If she is concerned about the effects of the air pollution from the plant, she should contact which regulatory agency?

A) Consumer Product Safety Commission (CPSC)
B) Environmental Protection Agency (EPA)
C) Food and Drug Administration (FDA)
D) Occupational Safety and Health Administration (OSHA)

Question 44

A merger between firms that compete in the same market is called a:

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

Question 45

Which of the following imposed regulation on its industry?

A) Bus Regulatory Reform Act of 1982
B) Staggers Rail Act of 1980
C) Motor Carrier Act of 1982
D) Interstate Commerce Act of 1887.

Question 46

In the United States, regulation increased steadily in the early 1970s in the areas of

A) health, safety, and the environment.
B) transportation.
C) telecommunications.
D) food and drugs.

Question 47

In the late 1970s and 1980s a movement toward deregulation took place because

A) the regulated industries became more competitive with rapidly advancing technology.
B) regulation was leading to higher production costs, which caused widespread dissatisfaction.
C) the transportation and telecommunication industries experienced the exit of many firms, which reduced the need for regulation.
D) Congress decided the regulations that had been in place were not effective anyway.

Question 48

Ever since the creation of the interstate highway system, the railroads have had to compete with trucks for freight shipments. Union Pacific, the nation's largest railroad, now offers door-to-door services to clients, using their own trains and trucks. This must be the result of:

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

Question 49

Which of the following lists the historical regulation of industries in chronological order?

A) 1. occupational health, consumer safety, and the environment, 2. transportation and telecommunications, 3. finance and healthcare
B) 1. transportation and telecommunications, 2. occupational health, consumer safety, and the environment, 3. finance and healthcare
C) 1. finance and healthcare, 2. transportation and telecommunications, 3. occupational health, consumer safety, and the environment
D) 1. transportation and telecommunications, 2. finance and healthcare, 3. occupational health, consumer safety, and the environment

Question 50

Paul Bergen and Virginia Clancy each own a 100-acre soybean farm in Soyburg, Illinois. Together they grow 1/1000th of 1 percent of the nation's soybeans. When they merge, it will:

A) attract the attention of the Federal Trade Commission.
B) be a horizontal merger.
C) reduce competition in the soy market.
D) increase the market power of Paul and Virginia.

Question 51

A horizontal merger is one in which the merging firms:

A) are about the same size.
B) produce the same good in the same industry.
C) will control greater than 50 percent of the market.
D) have never directly competed in the past.

Question 52

During the first phase of regulation in the United States (from 1887 to the Great Depression), the primary target of regulation was the:

A) labor unions.
B) communication industry.
C) food and drug industries.
D) railroads.

Question 53

Joe works in a factory producing chemicals used in paint manufacturing. If he is concerned about the effects of the chemicals that he works with on his health, he should contact which regulatory agency?

A) Securities and Exchange Commission (SEC)
B) Environmental Protection Agency (EPA)
C) Food and Drug Administration (FDA)
D) Occupational Safety and Health Administration (OSHA)

Question 54

IBM and Sara Lee are two of the biggest firms in the United States, but they produce different products. Could they legally merge, or would their merger be struck down by the courts?

Question 55

A conglomerate occurs when:

A) the products of the merging firms were not related in any manner before the merger.
B) the merger partners were competitors.
C) one firm is a domestic firm, and the other is a foreign company.
D) the firms stood in a buyer-seller relationship before the merger.

Question 56

A merger between two firms with unrelated products is a

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

Question 57

Deregulation, especially for the transportation and telecommunication industries, was the trend in the United States during the:

A) 1930s and it means increasing or phasing in government restrictions on economic activity.
B) 1950s and it means elimination or phasing out of government restrictions on economic activity.
C) 1970s and it means increasing or phasing in government restrictions on economic activity.
D) 1980s and it means elimination or phasing out of government restrictions on economic activity.

Question 58

For which pair of firms would a merger be horizontal?

A) Avis Car Rentals and United Airlines
B) Nike and Starbucks
C) Barnes and Noble and Wordsworth Booksellers
D) US Steel and Boeing

Question 59

A vertical merger occurs when:

A) the products of the merging firms were not related in any manner before the merger.
B) the merging partners were competitors before the merger.
C) one firm is a domestic firm, and the other is a foreign company.
D) the firms stood in a buyer-seller relationship before the merger.

Question 60

A merger between two firms that have a supplier-purchaser relationship is:

A) horizontal.
B) vertical.
C) conglomerate.
D) illegal.

Question 61

Products that result in external benefits for society require regulation to correct for

A) underproduction.
B) overproduction.
C) an equilibrium price that is too low.
D) an equilibrium quantity that is too high.

Question 62

Exhibit 13-1 Cable television monopolist

As shown in Exhibit 13-1, regulators might follow a marginal cost pricing strategy and require the cable television monopolist to operate at point:

A) A.
B) B.
C) C.
D) D.

Question 63

Consider a regulated natural monopoly. If the regulatory commission wants to establish a fair-return price, then it should set a price ceiling where the demand curve crosses the monopoly's long-run:

A) marginal revenue curve.
B) average revenue curve.
C) marginal cost curve.
D) average cost curve.

Question 64

The government will have to subsidize a natural monopoly in the long run if regulators choose to pursue:

A) marginal cost pricing
B) fair-return pricing.
C) per se pricing.
D) any form of regulation.

Question 65

Government regulators can achieve efficiency for a natural monopoly by setting a price ceiling equal to the intersection of the demand curve and the:

A) marginal revenue curve.
B) average cost curve.
C) marginal cost curve.
D) average fixed cost curve.

Question 66

If regulation imposes marginal cost pricing on a natural monopoly, then the monopoly will:

A) suffer persistent economic losses.
B) earn a fair, but not excessive, return on its assets.
C) produce too little output to achieve efficiency.
D) experience diseconomies of scale.

Question 67

If a good causes a positive externality, regulation might take the form of a

A) subsidy.
B) ban on the product.
C) tax.
D) price floor.

Question 68

Economic regulation occurs when:

A) monopoly is the optimal market structure.
B) the industry is highly competitive.
C) the product is important to economic welfare.
D) the government owns the assets of the industry.

Question 69

Regulatory commissions may focus on establishing a "fair-return" price to be charged by a monopolist. Under this policy, the monopolist would earn:

A) positive economic profits.
B) zero economic profits.
C) negative economic profits.
D) monopoly profits.

Question 70

Exhibit 13-1 Cable television monopolist

As shown in Exhibit 13-1, if regulators follow a fair return pricing strategy, the price will be:

A) $10, the quantity will be 100, and the profit will be negative.
B) $15, the quantity will be 80, and the profit will be $0.
C) $15, the quantity will be 40, and the profit will be $0.
D) $25, the quantity will be 40, and the profit will be positive.

Question 71

A local cable company has its rates set at P = $15 by a regulatory commission. Its current output is 10,000 households and its costs are as follows: ATC = $17; AVC = $14; and MC = $15. From this, we can tell that this is:

A) a fair price, and the firm earns a normal profit.
B) a fair price, and the firm earns an economic loss.
C) marginal cost pricing, and the firm earns a normal profit.
D) marginal cost pricing, and the firm earns an economic loss.

Question 72

Exhibit 13-3 A monopolist

In Exhibit 13-3, if this is an unregulated monopoly firm, the price and output which would maximize profits are:

A) price = $8; output = 25.
B) price = $10; output = 25.
C) price = $5; output = 40.
D) price = $4; output = 25.

Question 73

Exhibit 13-3 A monopolist

In Exhibit 13-3, if this industry is regulated and the regulatory commission wants revenue to just cover cost, the proper price and output combination to be set is:

A) price = $10; output = 25.
B) price = $8; output = 30.
C) price = $5; output = 40.
D) price = $4; output = 25.

Question 74

The task of economic regulation is to:

A) protect monopoly profits.
B) approximate the results of the competitive market.
C) replace competition with government ownership.
D) increase competition within the market.

Question 75

Which of the following statements is true ?

A) A vertical merger is a merger of firms that compete in the same market.
B) The rule of reason doctrine declares that the existence of monopoly alone is illegal.
C) Government regulation is economically justifiable for a natural monopoly.
D) Deficient information on unsafe products causes underconsumption.

Question 76

Exhibit 13-1 Cable television monopolist

As shown in Exhibit 13-1, regulators might follow a fair return pricing strategy and require the cable television monopolist to operate at point:

A) A.
B) B.
C) C.
D) D.

Question 77

Exhibit 13-1 Cable television monopolist

As shown in Exhibit 13-1, an unregulated cable television monopolist would operate at which point on its demand curve:

A) A.
B) B.
C) C.
D) D.

Question 78

The argument in favor of regulation for natural monopolies, externalities, and cases of imperfect information is:

A) market failure.
B) overallocation of resources to production.
C) insufficient economic profits.
D) excessive entry of new firms.

Question 79

Exhibit 13-3 A monopolist

In Exhibit 13-3, if this industry is regulated and the regulatory commission wants price to be set equal to marginal cost, the proper price and output combination to be set is:

A) price = $8; output = 30.
B) price = $5; output = 40.
C) price = $4; output = 25.
D) price = $3; output = 50.

Question 80

Marginal cost pricing is a system of pricing in which the price charged equals the marginal cost of:

A) the last unit produced and the firm earns zero profit.
B) each unit produced and the firm earns zero profit.
C) the last unit produced and the firm suffers a loss unless the government gives the firm a subsidy.
D) the profit-maximization unit and the firm earns an economic profit.