Deck 20: Antitrust Policy and Regulation

Question 1

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.

Answer 1

Clayton Act of 1914.

Question 2

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.

Answer 2

investigate instances of faulty and misleading advertising.

Question 3

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.

Answer 3

a tying contract.

Question 4

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 5

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 6

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 7

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 8

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) Sherman Act,Section 1.
B) Sherman Act,Section 2.
C) Clayton Act.
D) Federal Trade Commission Act.

Question 9

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 10

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 11

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 12

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 13

Which one of the following acts declared "[e]very 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 14

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 15

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 16

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 17

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 18

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

A) Price discrimination.
B) Tying contracts.
C) Price-fixing.
D) Interlocking directorates.

Question 19

Suppose the courts declare that XYZ Corporation violated the antitrust laws and as a result the 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 20

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 21

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 22

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 23

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.

Question 24

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 25

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 26

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 27

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 28

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 29

The Alcoa case:

A) supported the structuralist approach to antitrust.
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 a behavioralist approach.

Question 30

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 31

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 32

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 33

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 34

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 35

Price-fixing:

A) is prohibited by Section 7 of the Clayton Act.
B) is a per se violation of the antitrust laws.
C) may be either legal or illegal depending on whether or not it produces above-normal profits.
D) is illegal under terms of the Federal Trade Commission Act.

Question 36

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 37

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 38

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 39

The main purpose of the antitrust laws is:

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

Question 40

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 41

A conglomerate merger:

A) can extend the line of products sold,extend the territories in which products are sold,or combine totally unrelated products.
B) is defined as a merger involving two firms that previously had a buyer-seller relationship.
C) is defined as a merger involving two firms producing the same or similar products and selling them in the same geographical market.
D) is illegal,per se.

Question 42

Price-fixing is considered to be a per se violation of the antitrust laws because:

A) a guilty verdict requires proof of injury to consumers.
B) a guilty verdict requires proof of injury to other competitors.
C) the rule of reason is applicable.
D) a guilty verdict need only show that there was a conspiracy to fix prices,not that it succeeded.

Question 43

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 44

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

A) A conglomerate merger.
B) A vertical merger.
C) A price-fixing arrangement among all the industry firms.
D) A horizontal merger.

Question 45

Conspiracies to fix prices are:

A) illegal under the Clayton Act.
B) illegal under the Celler-Kefauver Act.
C) per se violations of the antitrust laws.
D) more tolerated by government today than two or three decades ago.

Question 46

Structuralists take the position that:

A) the rule of reason is appropriate and desirable in interpreting the Sherman Act.
B) only unreasonable anticompetitive acts should be regarded as violations of the antitrust laws.
C) industries should be judged on the basis of their technological progress and their price-output behavior.
D) an industry that is highly concentrated will behave monopolistically.

Question 47

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 48

Which one of the following is not correct?

A) In antitrust cases defendants attempt to define the relevant market broadly.
B) The courts have varied over time in their interpretations of the antitrust statutes.
C) Antitrust suits can only be originated by the Federal Trade Commission.
D) In antitrust cases the prosecution attempts to define the relevant market narrowly.

Question 49

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 premerger 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 50

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 51

Answer the question on the basis of the following table showing market shares of firms in hypothetical industries.Assume these are distinct industries with no buyer-seller relationships or competition among them. $\begin{array}{c}&&\text { Market Share of Firms in Industry }\end{array}$
$\begin{array}{c}\begin{array}{lll}\\Industry\\Alpha\\Beta\\Cappa\\Delta\\\end{array}\begin{array}{lll}\\1&2&3&4&5&6\\30&30&20&20&--&--\\80&10&5&3&1&1\\25&25&25&25&--&--\\20&20&20&20&10&10\end{array}\end{array}$ Refer to the table.The Herfindahl index for Cappa is:

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

Question 52

A merger of several firms operating in different industries-for example,a trucking company,a fast-food chain,and a brokerage house-is called:

A) an integrated merger.
B) a conglomerate merger.
C) a vertical merger.
D) a horizontal merger.

Question 53

A firm charged with monopolizing a market is less likely to be convicted if:

A) the court accepts a broad definition of the market.
B) the court accepts a narrow definition of the market.
C) it has gained its monopoly through abusive means.
D) it sells its product to other firms,rather than directly to consumers.

Question 54

The decision in the U.S.Steel case:

A) reflected a behavioralist approach to antitrust.
B) reflected a structuralist 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 55

Answer the question on the basis of the following table showing market shares of firms in hypothetical industries.Assume these are distinct industries with no buyer-seller relationships or competition among them. $\begin{array}{c}&&\text { Market Share of Firms in Industry }\end{array}$
$\begin{array}{c}\begin{array}{lll}\\Industry\\Alpha\\Beta\\Cappa\\Delta\\\end{array}\begin{array}{lll}\\1&2&3&4&5&6\\30&30&20&20&--&--\\80&10&5&3&1&1\\25&25&25&25&--&--\\20&20&20&20&10&10\end{array}\end{array}$ Refer to the table.The industry with the greatest market power as measured by the Herfindahl index is:

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

Question 56

A merger between a maker of household detergents and a fast-food chain would be an example of:

A) a horizontal merger.
B) an interlocking directorate.
C) a conglomerate merger.
D) a tying contract.

Question 57

Which of the following is correct?

A) Vertical mergers are more likely to be acceptable under antitrust laws than are horizontal mergers.
B) A vertical merger entails the merging of two or more competing firms.
C) Horizontal mergers are more likely to be acceptable under antitrust laws than are vertical mergers.
D) Conglomerate mergers occur when two or more firms at various stages in a good's production are combined.

Question 58

A vertical merger involves a combining of one or more firms:

A) as the result of one firm purchasing the assets of the other.
B) that are operating in entirely different industries.
C) operating at different stages of the production process in a particular industry.
D) operating at the same stage of the production process.

Question 59

Behavioralists believe that:

A) if four or fewer firms control more than half of the market for a product,then the Sherman Act is being violated.
B) industries should be judged on the basis of their price-output behavior and their technological progressiveness.
C) there is no evidence that any monopolistic industry has abused its market power.
D) all concentrations of economic power are socially undesirable.

Question 60

Antitrust authorities are least likely to take action against:

A) conglomerate mergers.
B) horizontal mergers.
C) interlocking directorates.
D) price-fixing.

Question 61

Suppose the transportation industry has been regulated for many years.Government now proposes to deregulate the industry,only to find that firms in the industry oppose this action.This is consistent with the:

A) public interest theory of regulation.
B) theory of natural monopolies.
C) legal cartel theory of regulation.
D) Alcoa and U.S.Steel court decisions.

Question 62

A market in which the entire demand for a good or service can be satisfied at the least cost by a single firm is a:

A) horizontal market.
B) natural monopoly.
C) contestable market.
D) perfect market.

Question 63

The public interest theory of industrial regulation contends that:

A) while industrial regulation is sound in theory,bureaucrats allow monopolists to obtain excessive profits.
B) regulated monopolies are tantamount to legal cartels.
C) the objective of regulation is to protect the public from the market power inherent in natural monopolies.
D) firms in some industries want to be regulated.

Question 64

Answer the question on the basis of the following table showing market shares of firms in hypothetical industries.Assume these are distinct industries with no buyer-seller relationships or competition among them. $\begin{array}{c}&&\text { Market Share of Firms in Industry }\end{array}$
$\begin{array}{c}\begin{array}{lll}\\Industry\\Alpha\\Beta\\Cappa\\Delta\\\end{array}\begin{array}{lll}\\1&2&3&4&5&6\\30&30&20&20&--&--\\80&10&5&3&1&1\\25&25&25&25&--&--\\20&20&20&20&10&10\end{array}\end{array}$ Refer to the table.A structuralist would most likely assert that there is a violation of antitrust law in which industry?

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

Question 65

Economists who adhere to the laissez-faire antitrust perspective:

A) view competition as a long-run dynamic process in which firms battle for dominance of markets but rarely can sustain such dominance once it is achieved.
B) believe the antitrust laws are as important today as they were when they were passed in the early 1900s.
C) say that an industry's structure,which is based on economies of scale,usually predicts the behavior of the industry firms.
D) contend that large,dominant firms should be broken into smaller competitive firms and then government should stand back and let competition prevail.

Question 66

Suppose that two firms in an industry with a Herfindahl index of 5,000 announce a merger.The U.S.Justice Department concludes the merger will boost the index to 5,500.The antitrust authorities will most likely:

A) ignore this merger because of the relatively small increase in the Herfindahl index.
B) allow the merger but watch the new firm carefully for future violations of the antitrust laws.
C) allow the merger if foreign entry to the industry is possible.
D) prevent the merger,contending that it violates the Clayton Act.

Question 67

Critics of the regulation of natural monopolies contend that:

A) regulation increases the incentive of firms to lower costs.
B) regulated firms may use creative accounting to reduce costs,prices,and profits.
C) when rates of return are based on the value of real capital,an uneconomic substitution of labor for capital may occur.
D) the industry may "capture" or control the regulatory commission.

Question 68

Which one of the following is concerned with industrial regulation,as distinct from social regulation?

A) Occupational Safety and Health Administration.
B) Consumer Products Safety Commission.
C) Federal Communications Commission.
D) Environmental Protection Agency.

Question 69

The view that the antitrust laws need to be strongly enforced to prevent illegal business behaviors,monopolization of markets,and allocative inefficiency is known as the:

A) structuralist view of antitrust.
B) behavioralist view of antitrust.
C) laissez-faire perspective on antitrust.
D) active antitrust perspective.

Question 70

Which of the following is characteristic of a regulated natural monopoly?

A) Extensive economies of scale.
B) The wasteful duplication of capital facilities in the event of competition.
C) The provision of an essential service.
D) All of these.

Question 71

The view that the antitrust laws should be enforced relatively leniently because of the tendency for monopoly power to erode over time is known as the:

A) structuralist view of antitrust.
B) behavioralist view of antitrust.
C) laissez-faire perspective on antitrust.
D) active antitrust perspective.

Question 72

Suppose that two firms in an industry that has a Herfindahl index of 1,000 announce a merger.The U.S.Justice Department concludes the merger will boost the index to 1,050.The antitrust authorities will most likely:

A) ignore this merger because of the relatively small size of,and increase in,the Herfindahl index.
B) prevent the merger,contending that it violates the Clayton Act.
C) allow the merger if foreign entry to the industry is possible.
D) allow the merger but watch the new firm carefully for future violations of the antitrust laws.

Question 73

Answer the question on the basis of the following table showing market shares of firms in hypothetical industries.Assume these are distinct industries with no buyer-seller relationships or competition among them. $\begin{array}{c}&&\text { Market Share of Firms in Industry }\end{array}$
$\begin{array}{c}\begin{array}{lll}\\Industry\\Alpha\\Beta\\Cappa\\Delta\\\end{array}\begin{array}{lll}\\1&2&3&4&5&6\\30&30&20&20&--&--\\80&10&5&3&1&1\\25&25&25&25&--&--\\20&20&20&20&10&10\end{array}\end{array}$ Refer to the table.A merger between Firm 1 in Alpha and Firm 2 in Delta would be a:

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

Question 74

A major criticism of industrial regulation is that:

A) it has been applied to virtually all major U.S.corporations in the post-Second World War period.
B) marginal cost pricing has created an underallocation of resources.
C) by allowing a fair return price,it gives natural monopolists little incentive to contain costs.
D) regulatory commissions have frequently caused natural monopolies to go bankrupt.

Question 75

Suppose the firms in a five-firm industry have market shares of 30,30,20,10,and 10 percent,respectively.The Herfindahl index for the industry is:

A) 1,900.
B) 2,400.
C) 90.
D) 10,000.

Question 76

The legal cartel theory of regulation argues that:

A) regulation encourages firms to inflate their production costs.
B) firms in certain industries want to be regulated rather than face the rigors of competition.
C) social regulation has been carried beyond the point at which marginal benefits and marginal costs are equal.
D) the government is the logical agency to protect consumers from natural monopolies.

Question 77

Answer the question on the basis of the following table showing market shares of firms in hypothetical industries.Assume these are distinct industries with no buyer-seller relationships or competition among them. $\begin{array}{c}&&\text { Market Share of Firms in Industry }\end{array}$
$\begin{array}{c}\begin{array}{lll}\\Industry\\Alpha\\Beta\\Cappa\\Delta\\\end{array}\begin{array}{lll}\\1&2&3&4&5&6\\30&30&20&20&--&--\\80&10&5&3&1&1\\25&25&25&25&--&--\\20&20&20&20&10&10\end{array}\end{array}$ Refer to the table.The government would likely 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 Cappa.
D) Firm 4 in Alpha and Firm 3 in Cappa.

Question 78

A firm is likely to be a natural monopoly:

A) when the demand for its product or service is inelastic.
B) if it is producing an inferior good.
C) if economies of scale are experienced over the full range of output.
D) because government grants it an exclusive franchise.

Question 79

Answer the question on the basis of the following table showing market shares of firms in hypothetical industries.Assume these are distinct industries with no buyer-seller relationships or competition among them. $\begin{array}{c}&&\text { Market Share of Firms in Industry }\end{array}$
$\begin{array}{c}\begin{array}{lll}\\Industry\\Alpha\\Beta\\Cappa\\Delta\\\end{array}\begin{array}{lll}\\1&2&3&4&5&6\\30&30&20&20&--&--\\80&10&5&3&1&1\\25&25&25&25&--&--\\20&20&20&20&10&10\end{array}\end{array}$ Refer to the table.A merger between Firm 2 and Firm 3 in Alpha would be a:

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

Question 80

Using antitrust law to split up an unregulated natural monopoly into several competing firms:

A) would reduce product price.
B) would increase product price.
C) might either increase product price or reduce product price.
D) will reduce average total cost.