Deck 49: Antitrust: the Sherman Act

Question 1

Traditional antitrust thinkers argue that:

A) concentrated economic power may lead to antidemocratic concentrations of political power.
B) antitrust regulations should protect competition instead of competitors.
C) concentration within a particular industry does not preclude interindustry competition.
D) domestic concentration might be necessary for effective international market competition.

Answer 1

A

Question 2

A nolo plea or a consent decree is often attractive to antitrust defendants because:

A) the government must prove criminal intent on the defendant's part.
B) it results in an imposition of a penalty without requiring a defendant to remedy his actions.
C) it is not admissible as proof of a violation of the Sherman Act in a private plaintiff's later civil suit.
D) it does not attract the same penalty as a guilty plea or a conviction at trial.

Answer 2

C

Question 3

Once firms have attained monopoly power, only then can they be held for violation of Section 2 of the Sherman Act.

Answer 3

False

Question 4

As per the Colgate doctrine, a manufacturer cannot unilaterally refuse to deal with those who fail to follow the manufacturer's suggested resale prices.

Question 5

The passage of the antitrust laws reflected a congressional assumption that competition was most likely to exist in an oligopolistic industrial structure.

Question 6

Firms that acquire monopoly power in a given market comply with the antitrust laws' objective of promoting competitive market structures.

Question 7

Which of the following antitrust activities can be challenged only under the state law?

A) Interstate agreements in restraint of trade.
B) Intrastate agreements in restraint of trade.
C) Interstate deceptive and unfair practices.
D) Intrastate deceptive and unfair practices.

Question 8

United States-based firms that engage in international business activities must remember that they could be subject to antitrust complaints in other nations.

Question 9

Chicago School advocates view __________ as the primary, if not sole, goal of antitrust enforcement.

A) intraindustry competition
B) anticoncentration of economic power
C) economic efficiency
D) anticoncentration of political power

Question 10

Chicago School theorists argue that antitrust policy's primary thrust should feature:

A) prointraindustry competition efforts.
B) proregulation efforts.
C) anticoncentration efforts.
D) anticonspiracy efforts.

Question 11

The proof of joint action required for violations of § 1 is applicable when a single firm is guilty of monopolizing or attempting to monopolize a part of trade or commerce.

Question 12

The relevant product market is composed of those products meeting the functional interchangeability test.

Question 13

Section 2 of the Sherman Act outlaws monopolies because monopolists have the power to fix prices unilaterally.

Question 14

Sherman Act violations may give rise to civil prosecutions only.

Question 15

Supreme Court decisions in recent years indicate that some group boycotts receive per se treatment, whereas other group boycotts receive rule of reason treatment.

Question 16

Federal antitrust laws have been extensively applied to activities affecting the international commerce of the United States.

Question 17

The potential anticompetitive effect of a tying agreement is that the seller's competitors in the sale of the tied product may be foreclosed from competing with the seller for sales to customers that have entered into tying agreements with the seller.

Question 18

Some courts have recognized that tying agreements sometimes may be necessary to protect the reputation of the seller's product line.

Question 19

When two or more business entities conspire to monopolize a relevant market, Section 2 of the Sherman Act may be violated.

Question 20

The activities of a corporation and its wholly owned subsidiary will not constitute the concerted action necessary for a violation of Section 1 of the Sherman Act.

Question 21

Which of the following is true about indirect purchasers?

A) Indirect purchasers' recovery from defendants precludes recovery by direct purchasers.
B) The Supreme Court has held that indirect purchasers lack standing to sue for antitrust violations.
C) The Supreme Court has held that indirect purchasers can recover only their actual losses.
D) Indirect purchasers do not have the standing to sue under any of the state antitrust statutes.

Question 22

Which of the following situations is most likely to trigger liability for a vertical boycott under Section 1 of the Sherman Act?

A) Evidence indicates that a conspiracy existed between a manufacturer and its nonterminated dealers to terminate a price-cutter.
B) Evidence indicates that a manufacturer unilaterally refused to deal with a price-cutter who failed to follow the manufacturer's suggested resale prices.
C) Evidence indicates that a manufacturer has terminated a discounting distributor after receiving complaints from its other distributors.
D) Evidence indicates that a manufacturer and its nonterminated dealers were engaged in an unlawful vertical price-fixing conspiracy.

Question 23

One of the elements that must be demonstrated before a challenged tying agreement will be held to violate Section 1 of the Sherman Act is that:

A) the seller commands 10 percent of market in the tied product category.
B) the tying product is available for purchase without the agreement.
C) the tying agreement involves two integrated components of a larger product.
D) the seller is the market leader in the tying product category.

Question 24

_____ analysis of behavior challenged under Section 1 of the Sherman Act is thought to provide reliable guidance to business.

A) Quick-look
B) Rule of reason
C) Secondary
D) Per se

Question 25

Resale price maintenance is also known as:

A) horizontal price-fixing.
B) vertical divisions of market.
C) horizontal divisions of market.
D) vertical price-fixing.

Question 26

Bony Corp. requires retailers and wholesalers that purchase Bony's $200 video cassette recorders to purchase $20-worth of blank Bony videotapes with each VCR. Under these circumstances, which of the following statements is accurate?

A) Bony's tying requirement will be deemed legal by the courts because it provides a great value proposition for end users.
B) The competitive harm in this case would be to Bony's competitors in the sale of video cassette recorders.
C) That Bony is the market leader in the VCR market is a relevant factor insofar as the legality of Bony's tying requirement is concerned.
D) Evidence that almost all of Bony's VCRs sold last year were part of the tying agreement would be helpful to Bony if it were sued under Section 1 of the Sherman Act.

Question 27

The Sherman Act provides that individuals criminally convicted of violating it may be:

A) fined up to $1 million per violation and may be imprisoned for as long as 5 years.
B) fined up to $500,000 per violation and may be imprisoned for as long as 10 years.
C) fined up to $500,000 per violation and may be imprisoned for as long as 5 years.
D) fined up to $1 million per violation and may be imprisoned for as long as 10 years.

Question 28

Which of the following situations will justify the inference that a price-fixing conspiracy exists?

A) The defendant's parallel pricing behavior stemmed from an implied agreement.
B) Independent business decisions by the defendant led to price parallelism.
C) The defendant was unwilling to relinquish market share by engaging in price competition.
D) The evidence only indicates pure conscious price parallelism by the defendant.

Question 29

Hardware retailers Deuce Hardware Co. and Trueblue Hardware Corp. agreed to a schedule of maximum prices that they will pay to hardware wholesalers with whom they deal. What is the most likely stand that the Supreme Court will take under these circumstances?

A) Their action will be deemed unlawful according to the rule of reason analysis.
B) Their action will be deemed lawful because only sellers can be guilty of price-fixing.
C) Their action will be deemed lawful if their agreement results in savings to consumers.
D) Their action will be deemed unlawful according to the per se analysis.

Question 30

Tying agreements may be challenged under both:

A) Section 1 of the Robinson-Patman Act and Section 3 of the Sherman Act.
B) Section 1 of the Sherman Act and Section 3 of the Clayton Act.
C) Section 1 of the Robinson-Patman Act and Section 3 of the Clayton Act.
D) Section 1 of the Clayton Act and Section 3 of the Sherman Act.

Question 31

Which of the following situations is most likely a case of Sherman Act Section 1 violation?

A) A manufacturer unilaterally assigns exclusive territories to its dealers.
B) A manufacturer unilaterally suggests a retail price to its dealers for its products.
C) A manufacturer causes its dealers to agree not to sell outside their dealership territories.
D) A manufacturer limits the dealerships it grants in a particular geographic area.

Question 32

Ojay Corp., A-C, Inc., and Kato Co. are competitors in the production and sale of knives. A year ago, the three firms agreed to share pricing information with each other on a periodic basis. As a result of this agreed sharing of information, the three companies regularly charge the same prices, including a minimum price that none of the three goes below and a maximum price that none of the three goes above. A fourth producer of knives, Bronco Co., the plaintiff in a Sherman Act Section 1 files a lawsuit against Ojay, A-C, and Kato. Bronco claims in the lawsuit that the foregoing facts constituted price-fixing and Bronco suffered direct antitrust injury as a result. Assuming that Bronco is a proper plaintiff, which of the following is an accurate analysis under current antitrust law?

A) Even if the defendants were involved only in conscious parallelism concerning pricing policies, they will be held liable under Section 1 because their behavior caused harm to the plaintiff.
B) If the court believes that the evidence demonstrates an agreement to fix prices, it will hold the defendants liable under Section 1 regardless of the business justifications for their agreement.
C) The defendants cannot be held liable under Section 1, because the facts indicate that they agreed to share pricing information without agreeing to fix prices or making any agreement to that effect.
D) The defendants should succeed with an argument that they are not liable for any fixing of maximum prices, because any such price-fixing would have finally benefited consumers.

Question 33

If a plaintiff proves that it has suffered a direct injury by another company in violation of the Sherman Act, it is entitled to recover:

A) twice the amount of loss it suffered as a result of the violation, plus court costs and attorney's fees.
B) twice the amount of loss it suffered as a result of the violation.
C) only the amount of loss it suffered as a result of the violation, plus court costs and attorney's fees.
D) three times the amount of loss it suffered as a result of the violation, plus court costs and attorney's fees.

Question 34

LMNOP Corp. has been convicted under the Sherman Act for two distinct and separate violations. LMNOP may be fined as much as _____ for these two violations.

A) $50 million
B) $100 million
C) $200 million
D) $150 million

Question 35

The Sherman Act states that corporations convicted of violating it may be fined as much as:

A) $50 million per violation
B) $100 million per violation
C) $200 million per violation
D) $150 million per violation

Question 36

In United States v. Colgate & Co. (1919), the Supreme Court:

A) overruled a long-standing precedent that had required per se treatment for vertical maximum pricefixing.
B) reaffirmed that horizontal divisions of markets are illegal per se and plainly represent agreements not to compete.
C) held that a manufacturer could unilaterally refuse to deal with those who failed to follow the manufacturer's suggested resale prices.
D) held that vertical minimum price-fixing would be judged under the rule of reason rather than the per se approach.

Question 37

Under Section 1 of the Sherman Act, a corporation's employees can be guilty of a conspiracy provided they conspire with:

A) either the board of directors or the senior management of the corporation.
B) the employees of a wholly owned subsidiary firm.
C) the employees of an independent, competitor firm.
D) the employees of a subsidiary in which the parent has a controlling interest.

Question 38

After Khan (State Oil Co. v. Khan (1997)) and Leegin (Leegin Creative Leather Products v. PSKS, Inc. (2007)), all forms of vertical price-fixing now receive _____ analysis.

A) quick-look
B) rule of reason
C) secondary
D) per se

Question 39

All the gas stations in Smalltown agree to charge the same price for gas. The owners of the various companies get together every Friday in a coffee shop to decide what the price will be next week. This is:

A) a violation of the Sherman Act, Section 1.
B) a violation of the McCarran-Ferguson Act.
C) a violation of the Robinson-Patman Act.
D) not a violation, as long as it benefits consumers.

Question 40

Assume that the Oklahoma Wholesale Lumber Suppliers' Association, a trade association formed by all lumber wholesalers in the state, adopts a "fair competition" plan that divides the state into exclusive territories for member wholesalers. Each member wholesaler is forbidden by the plan to sell to retailers in another wholesaler's territory. Under these circumstances, which of the following is true?

A) Since this is a case of ancillary vertical restraint, the courts would apply the rule of reason to determine whether it is lawful.
B) Since this is a case of "naked" horizontal restraint, the courts would apply the per se rule to determine whether it is lawful.
C) Since this is a case of ancillary horizontal restraint, the courts would apply the per se rule to determine whether it is lawful.
D) Since this is a case of "naked" vertical restraint, the courts would apply the rule of reason to determine whether it is lawful.

Question 41

Before a court can determine a defendant's market share, it must first define the relevant market. One of the components of a relevant market determination is the relevant:

A) resource market.
B) supply market.
C) geographic market.
D) competitive market

Question 42

A common variation of a(n) _____ agreement is the requirements contract.

A) exclusive dealing
B) joint venture
C) reciprocal dealing
D) formal written

Question 43

BG Corp., a manufacturer of men's polyester leisure suits and other men's clothing items, held approximately a 70 percent share of the leisure suit market in the United States. (Although most males have publicly spurned this 1970s-era item, BG knows quite well that millions of men still swear by them--albeit quietly.) BG began refusing to sell wholesalers and retailers its leisure suits unless they also purchased BG's polyester capes. As a result, intermediate sellers that wished to buy BG leisure suits for resale effectively had to agree to purchase the capes as well. BG had begun selling the capes two years earlier, but the product was a commercial flop. Only one other company manufactured capes for wearing by men, and that company was about to cease doing so because, as it and BG had discovered, there was virtually no demand among men for capes. An appropriate plaintiff has now sued BG under Section 1 of the Sherman Act, on the theory that BG was a party to impermissible tying agreements. What treatment will the court give the agreements? Will BG be held liable? Why or why not?

Question 44

Overbearing, Inc., which manufactures ball bearings, has built up a network of wholesale dealers. Under agreements between Overbearing and various dealers, each dealer has an established geographical territory of operation. These agreements also call for the individual dealers not to compete in another Overbearing dealer's exclusive territory. An appropriate plaintiff has sued Overbearing on the theory that these agreements violate Section 1 of the Sherman Act. What treatment will the court give the agreements? Why? Under that treatment, is it possible for Overbearing to avoid liability even if the existence of the agreements is established by the plaintiff? If so, how?

Question 45

Which of the following situations is most likely to be deemed in violation of Section 1 of the Sherman Act?

A) Intent to monopolize
B) Attempted monopolization
C) Misdirected monopolization
D) Conspiracy to monopolize

Question 46

Rockchalk Paving Co., a Kansas firm, paves public streets and highways in Kansas and the surrounding states of Nebraska, Colorado, Oklahoma, and Missouri. Wildcat Pavers, Inc., a paving contractor that competes with Rockchalk in Kansas, Oklahoma, and Missouri, filed suit against Rockchalk and Jayhawk Corp., another paving contractor. Wildcat alleges that Rockchalk owns 65 percent of the outstanding stock of Jayhawk and that the defendants violated Sections 1 and 2 of the Sherman Act by engaging in collusive bid-rigging practices. The defendants have moved to dismiss for failure to state a cause of action. Should their motion be granted? Explain your reasoning.

Question 47

When is proof of joint action required for violation of Section 2 of Sherman Act?

A) When a firm enters into an exclusive dealing agreement with a supplier.
B) When more than one firm is charged with a conspiracy to monopolize.
C) Charges of monopolization do not require any proof of joint action.
D) When a firm possesses not only monopoly power but also an intent to monopolize.

Question 48

Courts tend to treat _____ similarly because they are similar in motivation and effect.

A) exclusive dealing and reciprocal dealing agreements
B) joint venture agreements and exclusive dealing agreements
C) joint venture agreements and tying agreements
D) reciprocal dealing agreements and tying agreements

Question 49

The following statements pertain to alleged violations of Section 1 of the Sherman Act. Which statement is accurate?

A) Although tying agreements are classified as per se violations of Section 1, the judicial treatment given to them differs from pure per se treatment.
B) Because vertical restraints on distribution necessarily harm intrabrand competition, they are considered per se violations of Section 1.
C) Because group boycotts amount to reprehensible conduct that cannot have competitive justification, all such agreements are considered per se violations of Section 1.
D) Although concerted action ordinarily has been required in order for there to have been a violation of Section 1, the Supreme Court recently dispensed with the requirement in price-fixing cases.

Question 50

_____ agreements reduce a manufacturer's sales costs and provide dealers with a secure source of supply.

A) Joint venture
B) Exclusive dealing
C) Reciprocal dealing
D) Formal written

Question 51

Acme Corp. has captured 90 percent of the national market for commodity "X." Acme is most likely to be liable for monopolization under Section 2 of the Sherman Act, if "X" is:

A) felt-tip pens.
B) cellophane.
C) men's socks.
D) yellow notepads.

Question 52

Hem Sylvester Oil Company, owning a chain of wholly owned gas stations, refused to purchase the tires that Sans Corporation sells in some of its stations, unless the tire manufacturer agrees to purchase from the oil company, the petrochemicals used in the tire manufacturing process. This agreement is an example of a(n):

A) exclusive dealing agreement.
B) joint venture agreement.
C) reciprocal dealing agreement.
D) formal written agreement.

Question 53

The National Cooperative Research Act (NCRA) that applies to joint research and development ventures (JRDVs):

A) provides that treble damages may be recovered for losses flowing from a JRDV ultimately found to be in violation of Section 1 of the Sherman Act.
B) requires firms contemplating a JRDV to provide the Department of Justice and the Federal Trade Commission with advance notice of their intent to do so.
C) lacks provisions to allow the parties to a challenged JRDV to recover attorney's fees from an unsuccessful challenger.
D) requires application of a per se rule, rather than a reasonableness standard, when a JRDV's legality is determined.

Question 54

In the famous DuPont cellophane case, the Supreme Court ruled that even though DuPont had a 75 percent market share in cellophane, it did not have monopoly power in cellophane, because:

A) other functionally equivalent products were available in the market.
B) DuPont had not acquired its market power through improper means.
C) cellophane was not a significant product in Interstate commerce.
D) inference of monopoly power requires market share in excess of 80 percent.

Question 55

In 1978, Frieda Stayel opened a donut shop in the town of Fort Garth, Indiana. Her shop, called "Stayel Donuts," was the first of its kind in the community. Over the years, Stayel Donuts acquired a wide following, not only in Fort Garth but also throughout Indiana and even in surrounding states. Persons traveling through Indiana on their way to another state often would go out of their way to stop at Stayel Donuts because of what they had heard about the high quality of the baked goods sold there. Various competing donut shops opened in Fort Garth and in nearby communities during the years following 1978, but all had failed to acquire enough of a following to enable them to stay in business for very long. As of mid-2003, approximately 95 percent of the donuts sold in Fort Garth were Stayel donuts. The latest of Stayel's competitors whose business failed was Duane Duncan, the former operator of "Duncan Donuts." Duncan's attorney has advised him that Stayel has a monopoly on the donut business and that Duncan therefore has a good antitrust claim against Stayel under Section 2 of the Sherman Act? Is the attorney's advice legally sound? Why or why not?

Question 56

Dee Frost, president of the American Refrigerator and Freezer Producers Association (ARFPA) and CEO of Frozenaire Corp. (one of the nation's largest manufacturers of refrigerators and freezers), delivered the keynote address at the ARFPA's annual convention in Siberia, Montana. In her speech, Frost addressed the assembled members on the "credit sales" problem currently confronting the industry. According to Frost, this problem was a result of refrigerator and freezer manufacturers' increasing tendency to sell appliances on credit instead of requiring payment in full upon delivery--a tendency that, in Frost's view, had led to negative price trends in the industry. Frost asserted that if refrigerator and freezer producers would refuse to permit credit sales and would insist upon payment in full upon delivery, prices would return to "a reasonable level that serves the interests of the industry and consumers." She concluded her remarks by assuring those in attendance that Frozenaire would do its part by "unilaterally saying 'sorry, pardner' to requests for purchases on credit." A few months after the ARFPA meeting, the U.S. Justice Department filed a Sherman Act Section 1 lawsuit against Frozenaire and the other ARFPA members, citing evidence that all ARFPA members eliminated credit sales within one month after the meeting. Is the Justice Department's action proper? Explain your reasoning.

Question 57

Which of the following has been recognized by the courts as a possible justification for tying agreements?

A) The seller is a new business in the tied product category.
B) The tying product is not available for purchase without the agreement.
C) The tying agreement involves two separate and distinct items.
D) The seller is the market leader in the tied product category.

Question 58

To be liable for monopolization, a defendant must:

A) possess superior-quality products and services.
B) have a market share in excess of 70 percent.
C) possess best-in-class business acumen.
D) have exclusive dealing agreements with suppliers.

Question 59

Market shares in excess of _____ have historically justified an inference of monopoly power.

A) 70 percent
B) 60 percent
C) 90 percent
D) 80 percent

Question 60

Which of the following has been recognized by the courts as a possible justification for tying agreements?

A) The tying product functions properly only if used with the tied product.
B) The tying product is not available for purchase without the agreement.
C) The tying agreement involves two separate and distinct items.
D) The seller is the market leader in both the tying and tied product categories.