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Interactive Quiz for ALT-12e, Chapter 47
Chapter 47 – Antitrust Law
1. The basis of antitrust law is what?
a. To encourage monopolization.
b. To prevent degradation of the environment.
c. To foster competition.
d. To encourage all horizontal mergers.
Answers:
a. Incorrect. Antitrust law discourages, rather than encourages, monopolization.
b. Incorrect. Antitrust law is not particularly concerned with the environment.
c. Correct. While some economists might question the effectiveness of antitrust legislation in promoting competition, this is, nonetheless, the proclaimed basis of the law.
d. Incorrect. Antitrust law does not encourage all horizontal mergers.
2. Section 1 of the Sherman Antitrust Act prohibits which activities?
a. Contracts, combinations, or conspiracies in restraint of trade.
b. Monopolization or attempts to monopolize.
c. Predatory pricing.
d. Conducting market-share tests.
Answers:
a. Correct. Section 1 prohibits agreements that restrain trade.
b. Incorrect. Section 2 deals with these kinds of actions.
c. Incorrect. This would be a Section 2 violation.
d. Incorrect. This would not be a violation of Section 1 of the Sherman Antitrust Act.
3. Market power is defined as:
a. a market in which there is a single seller or a limited number of sellers.
b. the ability of a firm to dictate prices and exclude competition in a given market.
c. a type of anticompetitive agreement.
d. the power of a firm to affect the market price of its product.
Answers:
a. Incorrect. This describes a monopoly.
b. Incorrect. This describes monopoly power.
c. Incorrect. Market power is not an anticompetitive agreement.
d. Correct. This does describe market power.
4. Which of the following is a type of anticompetitive agreement that is considered to be so blatantly and substantially anticompetitive that it will be deemed a per se violation of Section 1 of the Sherman Act?
a. a price-fixing agreement.
b. a vertical merger.
c. a boycott.
d. a divestiture.
Answers:
a. Correct. Price-fixing agreements constitute per se violations of Section 1 of the Sherman Act.
b. Incorrect. A vertical merger is not a per se violation of Section 1.
c. Incorrect. A boycott is not necessarily a per se violation of Section 1.
d. Incorrect. A divestiture is not an anticompetitive agreement.
5. Assume that executives from competing producers of the two leading dog-food brands get together and decide to charge a certain price for their lamb and rice dog food. This would be an example of:
a. a vertical restraint of trade.
b. a horizontal restraint of trade.
c. a violation of the Clayton Act.
d. a violation of an antitrust exemption.
Answers:
a. Incorrect. This is not a vertical restraint of trade but rather, a horizontal restraint.
b. Correct. This is an agreement that restrains competition (in this case, price competition) between rival firms in the same market (the dog-food market).
c. Incorrect. This is not a Clayton Act violation.
d. Incorrect. This is not a violation of an antitrust exemption.
6. If the executives in the above question join two other major dog-food manufacturers in an agreement not to purchase any corn from the Iowa Corn Growers’ Cooperative, what kind of anticompetitive action would this be?
a. A tying arrangement in which the purchase of corn is tied to the sale of dog food.
b. A group boycott.
c. A horizontal market division by competing firms.
d. Price discrimination.
Answers:
a. Incorrect. This is not a tying arrangement.
b. Correct. The refusal, by a group of competitors, to deal with a particular person or firm is known as a group boycott.
c. Incorrect. This is not an example of a market division.
d. Incorrect. This is not an example of price discrimination.
7. Predatory pricing occurs when:
a. competitors agree to charge the same price for similar goods.
b. a firm’s market share decreases.
c. a firm raises its prices over that of its competitors.
d. a firm prices products substantially below cost to drive competitors out of the market.
Answers:
a. Incorrect. This would be price fixing.
b. Incorrect. A firm’s market share should increase if it engages in predatory pricing.
c. Incorrect. A firm lowers prices when it engages in predatory pricing.
d. Correct. This accurately describes predatory pricing.
8. When a court applies the “market-share test,” what does it consider in deciding what the “relevant market” for a good or service is?
a. It considers the number of competitors for a good or service.
b. It considers what the product market and geographical markets are for the good or service.
c. It considers when new products are likely to be introduced into the existing market.
d. It considers how easy it is for new companies to enter a market.
Answers:
a. Incorrect. Though this is an important issue, it is not considered when determining the relevant market.
b. Correct. What is the relevant market for dog food if you are applying the market-share test? A court would consider where the food is sold plus what the product market is.
c. Incorrect. This is not a part of the process of determining the relevant market.
d. Incorrect. Although this is an important issue in a monopolization case, it is not considered when determining relevant market.
9. Which of the following IS NOT a violation of the Clayton Act?
a. Price discrimination.
b. Price fixing.
c. Tying arrangement.
d. Exclusive dealing.
Answers:
a. Incorrect. This is a violation of the Clayton Act.
b. Correct. This is a violation of the Sherman Act, not the Clayton Act.
c. Incorrect. This is violation of the Clayton Act.
d. Incorrect. This is a violation of the Clayton Act.
10. In recent years, what agency or group has brought the vast bulk of antitrust actions?
a. The EPA.
b. The DOJ.
c. Private parties.
d. State attorneys general.
Answers:
a. Incorrect. The EPA does not bring most antitrust actions.
b. Incorrect. The DOJ does not bring most antitrust actions, despite the fact that most people think it is the government that initiates these cases.
c. Correct. Most antitrust cases (90 percent) are brought by private parties.
d. Incorrect. State attorneys general do not bring most antitrust actions.