Chapter 22: Antitrust Law and Promoting Competition



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BLTE-10e Practice Quiz

Chapter 22:

Antitrust Law and Promoting Competition

1. The basis of antitrust law is:




  1. To encourage monopolization.

  2. To prevent degradation of the environment.

  3. To foster competition.

  4. To encourage all horizontal mergers.

ANS:


  1. Incorrect. Antitrust law discourages, rather than encourages, monopolization.

  2. Incorrect. Antitrust law is not particularly concerned with the environment.

  3. Correct. While some economists might question the effectiveness of antitrust legislation in promoting competition, this is, nonetheless, the proclaimed basis of the law.

  4. Incorrect. Antitrust law does not encourage all horizontal mergers.

2. One of the most powerful tools that the federal government has for maintaining a competitive economy is:




  1. The Lanham Act.

  2. The Sherman Act.

  3. The Fair Credit Reporting Act.

  4. The Government-in-the-Sunshine Act.

ANS:


  1. Incorrect. The Lanham Act applies to trademarks.

  2. Correct. The Sherman Antitrust Act of 1890 is a legislative tool used by the federal government to restrict the activities of certain firms that allow them to gain monopoly power or unfair advantage in the marketplace.

  3. Incorrect. The Fair Credit Reporting Act is a consumer protection device.

  4. Incorrect. The Government-in-the-Sunshine Act prohibits secret government meetings.

3. Monopoly power is defined as:




  1. That power that exists when a firm has an extremely great amount of market power and the ability to dictate what takes place in a given market.

  2. That power that exists when a firm has only product power, not market power.

  3. That power that exists when a firm has a significant amount of market power but not enough to affect the market price of its product.

  4. That power that exists when a firm has less than fifty competitors.

ANS:


  1. Correct. This is the definition of monopoly power.

  2. Incorrect. Monopoly power exists when a firm has an extremely great amount of market power and the ability to dictate what takes place in a given market.

  3. Incorrect. Monopoly power exists when a firm has an extremely great amount of market power and the ability to dictate what takes place in a given market.

  4. Incorrect. Monopoly power exists when a firm has an extremely great amount of market power and the ability to dictate what takes place in a given market.

4. The Sherman Act applies solely to restraints that affect:




  1. Intrastate commerce.

  2. Interstate commerce.

  3. International commerce.

  4. Indigenous commerce.

ANS:


  1. Incorrect. The Sherman Act applies solely to restraints that affect interstate commerce.

  2. Correct. The Sherman Act applies solely to restraints that affect interstate commerce.

  3. Incorrect. The Sherman Act applies solely to restraints that affect interstate commerce.

  4. Incorrect. The Sherman Act applies solely to restraints that affect interstate commerce.

5. 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?




  1. A price-fixing agreement.

  2. A vertical merger.

  3. A boycott.

  4. A divestiture.

ANS:


  1. Correct. Price-fixing agreements constitute per se violations of Section 1 of the Sherman Act.

  2. Incorrect. A vertical merger is not a per se violation of Section 1.

  3. Incorrect. A boycott is not necessarily a per se violation of Section 1.

  4. Incorrect. A divestiture is not an anticompetitive agreement.

6. 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:




  1. a vertical restraint of trade.

  2. a horizontal restraint of trade.

  3. a violation of the Clayton Act.

  4. a violation of an antitrust exemption.

ANS:


  1. Incorrect. This is not a vertical restraint of trade but rather, a horizontal restraint.

  2. Correct. This is an agreement that restrains competition (in this case, price competition) between rival firms in the same market (the dog-food market).

  3. Incorrect. This is not a Clayton Act violation.

  4. Incorrect. This is not a violation of an antitrust exemption.

7. Predatory pricing occurs when:




  1. Competitors agree to charge the same price for similar goods.

  2. A firm's market share decreases.

  3. A firm raises its prices over that of its competitors.

  4. A firm prices products substantially below cost to drive competitors out of the market.

ANS:


  1. Incorrect. This would be price fixing.

  2. Incorrect. A firm's market share should increase if it engages in predatory pricing.

  3. Incorrect. A firm lowers prices when it engages in predatory pricing.

  4. 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?




  1. It considers the number of competitors for a good or service.

  2. It considers what the product market and geographical markets are for the good or service.

  3. It considers when new products are likely to be introduced into the existing market.

  4. It considers how easy it is for new companies to enter a market.

ANS:


  1. Incorrect. Though this is an important issue, it is not considered when determining the relevant market.

  2. Correct. To determine what the relevant market is for a particular food item using the market-share test, for example, a court would consider what the product market is and where the food is sold.

  3. Incorrect. This is not a part of the process of determining the relevant market.

  4. Incorrect. Although this is an important issue in a monopolization case, it is not considered when determining relevant market.

9. If a seller requires that a buyer purchase all of its copier paper from the seller, this may violate which part of the federal antitrust laws?




  1. The Clayton Act’s prohibition on exclusive dealing.

  2. The Clayton Act’s prohibition on tying arrangements.

  3. Section 7 of the Clayton Act.

  4. This will not violate the federal antitrust laws.

ANS:


  1. Correct. This kind of arrangement is an illegal exclusive-dealing arrangement, prohibited by the Clayton Act.

  2. Incorrect. This is not a tying arrangement.

  3. Incorrect. This does not violate Section 7 of the Clayton Act.

  4. Incorrect. This arrangement does violate federal antitrust laws.

10. One of the government agencies that enforces federal antitrust laws is:




  1. The U.S. Department of Justice (DOJ).

  2. The U.S. Treasury Department.

  3. The Office of the Mint.

  4. The Office of Management and Budget (OMB).

ANS:


  1. Correct. The DOJ is one of the agencies responsible for enforcing federal antitrust laws. The Federal Trade Commission (FTC) is the other.

  2. Incorrect. The Treasury Department does not enforce antitrust laws.

  3. Incorrect. The Office of the Mint does not enforce antitrust laws.

  4. Incorrect. The OMB is not involved in antitrust enforcement.



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