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Chapter Nine:
Antitrust: Economics, Law, and Politics
True and False Questions:
1) Antitrust policy is a recent development that goes back to the 1970’s.
2) The Interstate Commerce Act of 1887 provides the states the ability to regulate
the trade passing through their state.
3) The Interstate Commerce Act and the Sherman Act represent both social and
economic policy.
4) The antitrust laws control the concentration of economic power and the potential
of abuse of such power once concentrated.
5) The main federal antitrust statutes are the Sherman Act, the Clayton Act of 1914,
and the Federal Trade Commission Act of 1914.
6) There are a number of schools of thought about antitrust of which one is the
structure-conduct-performance approach.
7) The broad language employed in antitrust laws does not leave much room for
interpretation.
8) Practices that come under the antitrust laws are classified as national or
international.
9) The Robinson-Patman Act of 1934 strengthened Section 2 of the Clayton Act’s
prohibition of racial discrimination.
10) The Federal Trade Commission Act states: “Unfair methods of competition in
commerce, and unfair or deceptive acts or practices in commerce, are hereby
declared unlawful.”
11) There are no exemptions under the antitrust laws.
12) A conglomerate merger involves two firms that operate in the same industries as
competitors or as part of a channel of distribution of supply.
13) The definition of a monopoly in economic theory is the presence of a firm that
dominates in a market and can restrict its output to increase the price consumers
pay.
14) Monopolization cases such as those against Microsoft are quite common.
15) Both the Department of Justice (DOJ) and the Federal Trade Commission (FTC)
have the authority to enforce the Sherman Act and the Clayton Act, but only the
FTC can enforce the Federal Trade Commission Act.
16) The Federal Trade Commission (FTC) is an independent commission of 15
members appointed by the Senate to seven-year terms.
17) Consent decrees are agreements reached by the litigants under the sanction of the
Federal Trade Commission (FTC).
18) Under the provisions of the 1974 Antitrust Procedures and Penalties Act, fines
against corporations can be as high as $10 million per count in criminal cases.
19) During the past 25 years, the DOJ and the FTC have effectively stopped enforcing
the Robinson-Patman Act because of their view that it stifles competition.
20) In spite of the lack of enforcement against certain vertical arrangements, federal
enforcement of the antitrust laws is active.
21) Few antitrust cases are the result of private lawsuits.
22) The courts have held that some acts are so egregious on their face that they violate
antitrust laws and are said to be per se illegal.
23) The defendant has just one defense under the rule of reason: the defendant did not
commit the act in question.
24) The Chicago school views the objectives of antitrust as economic efficiency and
competition as the worst means for achieving efficiency.
25) The principal area where the structural and Chicago schools have differed
concerns vertical arrangements.
26) The new IO approach to antitrust is derived from the politics of modern industrial
organization.
27) Under the theories of the Chicago school, the purpose of antitrust policy is for
economic objectives with a focus on static and dynamic efficiency.
28) The underlying values in the Structural View are economic efficiency and
individual-collective responsibility.
29) Under the IO theory, consumers can protect themselves when they have choices.
30) The traditional perspective on predatory pricing is that firms may attempt to drive
a competitor out of a market by cutting prices below costs.
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Multiple Choice Questions:
31) The antitrust acts were the result of political pressures by whom?
a) The Populist movement
b) Farmers concerned about the railroad’s pricing practices
c) The distribution of power between farmers and railroads
d) All of the above were political pressures to enact antitrust laws
32) Antitrust laws are concerned with the following, except:
a) Structure of the markets.
b) Foreign policy.
c) Conduct of market participants.
d) Performance of the markets.
33) Antitrust policy had its origins in the___________ movement of the 1870’s.
a) Democratic
b) Whig
c) Populist
d) No Nothings
34) Which of the following is not an example of a law pertaining to antitrust acts?
a) Robinson-Patman Act
b) The Federal Trade Commission Act
c) The Wagner Price Fixing Act
d) The Clayton Act
35) What percentage of suits filed under the federal antitrust laws do private litigants
bring?
a) 10
b) 34
c) 67
36) Section 1 of the Sherman Antitrust Act pertains to which of the following?
a) Unilateral monopoly conduct
b) Unreasonable restraints of trade with a focus on joint conduct
c) Unfair pricing standards
d) Market domination in advertising
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37) The Robinson-Patman Act was intended to achieve which of the following
goal(s)?
a) Protect farmers from unfair competition from railroads
b) Make price fixing illegal
c) Prohibit deceptive acts and practices
d) Protect small businesses and merchants from their larger competitors such as
supermarkets
38) Which of the following are not vertical practices?
a) Boycotts
b) Tying
c) Price discrimination
d) Exclusive dealing
39) The Department of Justice can enforce antitrust laws only through which means?
a) Lawsuits filed in federal court
b) Lawsuits filed in state court
c) Lawsuits filed in even years
d) Lawsuits that have legitimate standing
40) Which of the following must confirm members of the FTC?
a) House of Representatives
b) Senate
c) Both a and b
d) Neither a nor b
41) The Hart-Scott-Rodino Antitrust Improvement Act of 1976 requires premerger
notifications to the ___ and the ___ of plans to merge.
a) DOJ; FTC
b) DOJ; FBI
c) FTC; FCC
d) There is no such provision in the law
42) In 2000, what was the number of possible mergers reported under the provisions
of the Hart-Scott-Rodino Act?
a) None because firms do not need to report such information to the government
b) 1,547
c) 2,389
d) 4,926
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43) Private antitrust suits appear to be going in which of the following directions?
a) Increasing substantially
b) Decreasing substantially
c) Doubling is numbers year to year
d) Almost disappearing
44) The Clayton Act has a provision for ____damages and this provides a
______incentive to file suits.
a) Quadruple; strong
b) Treble; strong
c) Seven times; strong
d) Only twice; weak
45) If acts are said to be per se illegal, one defense allowed is the defendant did not
commit the act and the second is what?
a) Defendant is irrational
b) Defendant is unethical
c) Prosecution is out to get the defendant
d) The defendant committed the act, but it was not unreasonable to do so
46) Which of the following characteristics is not part of the Structural school of
thought regarding the purpose of antitrust policy?
a) international and global
b) Government is to protect society from economic power
c) Competition is the best protector of consumers and economic efficiency
d) Market is fragile and prone to failure
47) Under the structural or traditional approach, it believed that in concentrated
industries collusion is _____________.
a) Unlikely
b) Given
c) Likely
d) Very rare
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48) Which of the following statements is a characteristic of the Chicago school of
thought pertaining to antitrust laws?
a) Social and political as well as economic objectives
b) Markets are resilient enough that market imperfections can be addressed
through incentives
c) Government is to protect society from economic power
d) Market power derives from both horizontal and vertical arrangements
49) The aspect of entry into markets is viewed differently between the structural and
the Chicago schools of thought. The former advocates the following practices
with one exception. The exception is what?
a) Few barriers to entry
b) Barriers are due to the efficiency of incumbent firms
c) Potential entry limits the economic power of incumbents
d) High barriers to entry reduce efficiency
50) The New IO Approach to antitrust advocates the following principles except:
a) Competition can be effective with a small number of competitors.
b) Barriers to entry can be present.
c) More competitors mean more competition.
d) Innovation and competition are required for efficiency.
Essay and Review Questions:
1) Antitrust laws and the agencies involved in enforcing such acts seem to be
confusing. Please outline, in a concise way, the basic acts or laws concerning
antitrust, the specific governmental agencies in charge of enforcing each law, the
limits of the responsibility of such agencies, and your suggestions to simplify the
process.
2) Trace the evolution of antitrust laws and their enforcement in the U.S.A. to the
present. Explain the justifications for expanding government involvement in the
process. Note the newest theories and thoughts on antitrust in a knowledge-based,
global economy.
3) Compare the basic premises and/or assumptions of the three antitrust schools of
thought. Give specific examples that the proponents of each school provide in
favor of their opinions. Choose one of the schools and explain why you like it
best.
4) Outline, diagrammatically, the basic differences in antitrust thought, especially as
related to:
a) Vertical arrangements
b) Predatory pricing
c) Entry deterrence, and
d) Collusion and price fixing
5) The U.S. president has appointed you as his special assistant. He has asked you to
educate him on the question of mergers and merger guidelines and their evolution
over the past few decades. He also asked you to prepare some new directions for
policy analysis and possible actions by his administration. Please write the report,
including what the ramifications might be of changing such policies in light of all
the corruption and fraud being identified in Corporate America. Also refer to the
case of Microsoft in your analysis and recommendations. How has this company
changed the face of antitrust or has it?
6) Discuss in detail the issues involved in the case, Price Fixing in the Airways.
7) What are the issues in the case of The Staples-Office Depot Merger? What
agencies are involved and why? Was this case a merger versus an acquisition?
What is the difference? What are the potential antitrust issues in this case? What
are the basic issues? What would your ruling be and why?
8) In The Microsoft Antitrust case, who was involved and why? What were the basic
issues and why were they relevant in this case? From the perspective of antitrust
law, what are the issues concerning this case? What are the political, social and
economic aspects of this case?
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9) What are the issues concerning antitrust laws and enforcement? Who is involved
and why? How would you recommend that the system be changed and why?
10) We have just entered a new century with many antitrust laws that were passed in
the heart of the industrial age. We are now in the technological and informational
age that is brain- and decreasingly brawn-based. Write an essay recommending
what type of antitrust laws will be needed in the 21st century as we become more
information-dependent and globally connected.