Deck 42: Antitrust

Question 1

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

Answer 1

True

Question 2

The principal objective of antitrust law governing mergers is to maintain competition.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

An agreement between a manufacturer and a wholesaler is horizontal.

Question 5

The Robinson-Patman Act adds to the Clayton Act merger provisions.

Question 6

Regarding Section 2 of the Sherman Act, the standard test applied by the courts requires proof of a specific intent to monopolize plus a dangerous probability of success; however, this test neither defines "intent" nor gives a standard of power by which to measure "success."

Question 7

All tying arrangements are per se illegal.

Question 8

Section 1 of the Sherman Act outlaws monopolies and attempts to monopolize.

Question 9

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

Question 10

If United Widgets lowers its price to all buyers of 10 or more widgets because it costs United less to sell that quantity, it is not a violation of the Robinson-Patman Act.

Question 11

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

Question 12

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

Question 13

All price discrimination is illegal under the Robinson-Patman Act.

Question 14

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

Question 15

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

Question 16

Like the Sherman Act, Section 3 of the Clayton Act applies only to practices involving commodities, not to those that involve services, intangibles, or land.

Question 17

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

Question 18

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

Question 19

The courts have interpreted the Sherman Act as prohibiting contracts that unreasonably restrain trade.

Question 20

The main goal of antitrust regulation is to prevent competitive behavior among firms.

Question 21

A restraint of trade may be classified as either horizontal or vertical.

Question 22

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 .

Question 23

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.

Question 24

A "Vertical Restraint Index" is a measure of relative market share.

Question 25

Under the Clayton Act, private parties can bring civil actions in federal court for treble damages and attorneys' fees.

Question 26

The Federal Trade Commission was created by the Sherman Act and its powers are limited to preventing unfair methods of competition as set forth in the Sherman Act.

Question 27

A secondary-line injury to competition occurs when the recipient of a favored price passes the benefits of the lower price on to the next level of distribution.

Question 28

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.

Question 29

If a wholesale manufacturer gets a retail outlet for its goods through merger, this is a horizontal merger.

Question 30

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.

Question 31

The Clayton Act exempts labor, agricultural, and horticultural organizations from all antitrust laws.

Question 32

Group boycotts are not prohibited by the Sherman Act.

Question 33

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

Question 34

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

Question 35

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

Question 36

The Justice Department has expanded its enforcement policy of the Sherman Act to cover foreign companies' conduct that harms U.S. exports.

Question 37

In the case of Eastman Kodak Co. v. Image Technical Services, Inc. the U.S. Supreme Court identified the exact conduct, beyond mere possession of monopoly power, which violates Section 2 of the Sherman Act.

Question 38

Section 1 of the Sherman Act does not prohibit concerted action.

Question 39

The validity, under antitrust law, of a joint venture depends on the competitors' purpose in forming it.

Question 40

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

Question 41

The definition of price-fixing includes agreements that may, among other things:

A) depress prices.
B) stabilize prices.
C) raise prices.
D) All of these.

Question 42

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

A) Injunctions.
B) Consequential damages.
C) Restitution.
D) None of these.

Question 43

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:

A) this is per se illegal.
B) there is no violation.
C) this will be tested under the rule of reason.
D) there is a tying arrangement.

Question 44

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

A) horizontal allocation.
B) vertical market restraint.
C) horizontal price fixing.
D) a tying arrangement.

Question 45

Which of the following is correct regarding the Clayton Act?

A) It deals with price discrimination, tying contracts, and mergers.
B) It added criminal sanctions to the Sherman Act.
C) It repealed the Robinson-Patman Act.
D) It included labor organizations in its coverage.

Question 46

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

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

Question 47

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:

A) per se illegal.
B) no violation.
C) a tying arrangement.
D) vertical market allocation.

Question 48

Conglomerate mergers have been challenged only when:

A) one of the merging firms would be highly likely to enter the other firm's market.
B) the merged company would be disproportionately large, compared with the smallest competitors in its industry.
C) Both of these.
D) Neither of these.

Question 49

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

A) unfair conduct or abuse of power.
B) concerted action.
C) competitive behavior.
D) economic advantage.

Question 50

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

A) Vertical market allocations.
B) Horizontal market allocations.
C) Vertical price restraints.
D) Monopolies

Question 51

The common law traditionally:

A) restricted competition.
B) held that contracts in restraint of trade are illegal and unenforceable.
C) favored concentrations of economic power in the form of trusts and combinations.
D) All of these.

Question 52

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:

A) horizontal price fixing.
B) vertical price fixing.
C) vertical market allocation.
D) a group boycott.

Question 53

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

A) Sherman Act.
B) Federal Trade Commission Act.
C) Robinson-Patman Act.
D) All of these.

Question 54

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:

A) there is no violation since there is no express agreement to boycott Cayuga.
B) illegality may be implied from this conduct.
C) there is no concerted action.
D) this is horizontal market allocation.

Question 55

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:

A) tying arrangements.
B) exclusive dealing arrangements.
C) attempts to monopolize.
D) None of these.

Question 56

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

A) vertical price maintenance.
B) a horizontal group boycott.
C) vertical market allocation.
D) horizontal price fixing.

Question 57

If a seller of a product conditions its sale upon the buyer's purchasing a second product from the seller, this is known as a:

A) tying arrangement.
B) boycott.
C) horizontal restraint.
D) disparagement.

Question 58

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

A) What other products are substitutable for the product.
B) Where the product is sold.
C) How much of the product is sold.
D) All of these.

Question 59

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

A) considers the makeup of a relevant industry.
B) does not consider the defendant's position in that industry.
C) considers the defendant's need for the financial gain from the restraint of trade.
D) does not consider competitor's ability to respond to the challenged practice of restraint of trade.

Question 60

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

A) mergers.
B) price discrimination.
C) tying arrangements.
D) None of these.

Question 61

Creativ-Design, Inc. has 68% of the market share in a particular geographic region for one of its products. Does Creativ-Design have a monopoly? Explain.

Question 62

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) illegal per se .
B) a tying arrangement, which will be closely scrutinized by the law.
C) a vertical customer restriction.
D) no violation.

Question 63

The National Cooperative Research Act provides that:

A) joint ventures in the research and development of new technology are to be judged under the rule of reason test.
B) treble damages apply to all joint ventures formed in violation of the antitrust laws.
C) joint venture participants must under all circumstances report their intent to the Justice Department.
D) joint ventures formed to divide markets and fix prices are not illegal.

Question 64

What are the major functions of the Federal Trade Commission (FTC) and what power does the FTC have?

Question 65

W & W, Inc. manufactures and sells widgets. It sells widgets to Marklin of Marklin's Department Store and gives him a preference in pricing that discriminates against other retailers. Does Marklin have liability for price discrimination? Does W & W, Inc. have liability for price discrimination? Explain.

Question 66

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

A) is a felony and can result in imprisonment.
B) may subject an individual to a fine of up to $1 million per violation.
C) may subject a corporation to a fine of $100 million per violation.
D) All of these are true.

Question 67

Elko, Inc. and Fuldan, Inc. closely monitor each other's actions regarding the sale of consumer electronic products. Each corporation tries to match the other's product designs and specifications, prices, and advertising strategies. As a result, the two corporations have similar products, prices, and profits. Is this a violation of the antitrust laws?

Question 68

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) a per se price fixing violation of the Sherman Act.
B) not a violation of the Sherman Act, because it has been made by a professional association.
C) not a violation of the Sherman Act, because a fee is different from a price.
D) subject to the rule of reason.

Question 69

Sarreno Cheese Co. supplies mozzarella cheese to pizza restaurants at $1.70 per pound. In order to snare the business of one large pizza chain, Sarreno offers to sell them cheese at $1.45 per pound. This will violate the Robinson-Patman Act unless:

A) the pizza chain can already get the cheese for $1.45 elsewhere.
B) Sarreno can show its price is justified because of a cost savings based on quantity.
C) Sarreno lowers the price to all its customers.
D) Any of these.

Question 70

The National Cooperative Research Act:

A) prohibits using the rule of reason test in judging joint ventures in research and development of new technology.
B) is designed to clear up uncertainty about the legality of joint ventures.
C) now requires treble damages if joint ventures are formed in violation of Section 1 of the Sherman Act.
D) All of these.

Question 71

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

A) A market share greater than 50% generally indicates monopoly power.
B) A market share between 50 and 75% is, in itself, inconclusive in determining monopoly power.
C) Market share is rarely used as a test of monopoly power because it is difficult to determine.
D) Market share is a common test for monopoly power because it is an easy, objective measurement for courts to determine.

Question 72

The concerted action requirement of the Sherman Act Section 1:

A) may be established by an express agreement.
B) is not met when a parent corporation and its wholly owned subsidiaries agree to a restraint in trade.
C) requires factors, additional to conscious parallelism, such as identical sealed bids from each competitor.
D) All of these

Question 73

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

A) a vertical restraint.
B) a horizontal restraint.
C) price fixing.
D) a trust.

Question 74

Discuss the validity and effect of each of the following:
a. Two manufacturers of the same product decide to allocate territories with one taking the southern states.
b. A labor union encourages its members and all consumers to boycott a product manufactured by a company that refuses to honor a union contract.
c. Betty's Bargain Department Store sells its products for 10% under the suggested retail price. One manufacturer tells the store it will not supply wholesale goods to it unless it charges at least the suggested retail price.

Question 75

The Leegin Creative Leather Products, Inc. v. PSKS, Inc. case held that:

A) vertical agreements establishing minimum resale prices should be judged by the rule of reason standard.
B) vertical agreements establishing minimum resale prices are illegal per se .
C) horizontal price fixing agreements must be evaluated by studying the reasonableness of the restraint in light of real market forces at work in the situation.
D) if a seller can show it costs less to sell to a particular buyer, the seller may lawfully pass along the cost savings.

Question 76

The 2010 Horizontal Merger Guidelines:

A) were issued by the Justice Department to be additional to the FTC's separate guidelines.
B) require a mechanical application; in order to reduce the previously used analytic framework, which was far too subjective and uncertain.
C) rejects use of the Herfindahl-Hirschman Index.
D) clarify that merger analysis does not use a single methodology.

Question 77

A form of business association organized to carry out a particular business enterprise is a:

A) sole proprietorship.
B) tenancy in common.
C) joint venture.
D) competitor.

Question 78

The Clayton Act deals with which of the following situations?

A) Supply discrimination.
B) Tying contracts and mergers.
C) Interlocking ties.
D) Monopoly conspiracies.

Question 79

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

A) the seller occupied a dominant position in the tying market.
B) the seller's product enjoys an advantage not shared by its competitors in the tying market.
C) 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.
D) All of these.

Question 80

Masson Supply sells hinges to retail outlets for $1.20. If Rorsch Ltd. approaches Strunk Hardware, one of Masson's customers, and offers to sell a comparable hinge for $1.10:

A) Masson may, without violating the Robinson-Patman Act, lower its price to Strunk to $1.10, and Masson need not lower its price to its other customers.
B) Masson may not lower its price to Strunk to $1.10 unless it lowers its price to its other customers or it will violate the Robinson-Patman Act.
C) Masson may lower its price to Strunk to $1.05 in order to keep Strunk's business, even if Masson does not lower the price to its other customers, without violating the Robinson-Patman Act.
D) Masson may lower its price to Strunk without also lowering its price to Masson's other customers in order to allow Strunk to meet a lower price Strunk's competitor charges when selling Rorsch's hinges.