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Chapter 27
Antitrust Law
N.B.: TYPE indicates that a question is new, modified, or unchanged, as follows.
N A question new to this edition of the Test Bank.
+ A question modified from the previous edition of the Test Bank.
= A question included in the previous edition of the Test Bank.
TRUE/FALSE QUESTIONS
1. The purpose of antitrust law is to reduce competition.
2. Any activity that substantially affects interstate commerce falls outside the
scope of antitrust laws.
3. Market power is the ability of a firm to enter a given market.
4. A price-fixing agreement that is reasonable does not violate antitrust law.
5. A horizontal restraint is any agreement that in some way restrains competition
between rival firms competing in the same market.
2 TEST BANK—UNIT SIX: THE REGULATORY ENVIRONMENT
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6. Any agreement that restricts output among competitors is a per se violation of
Section 1 of the Sherman Act.
7. A concentrated industry is one in which either a single firm or a small number
of firms carry out the separate functions of the chain of production.
8. A territorial or customer restriction is currently considered a per se violation of
antitrust law.
9. The possession of monopoly power is the only element needed to establish the
offense of monopolization.
10. A firm may be a monopolist even though it is not the sole seller in a market.
11. The relevant product market includes only products that, although produced by
different firms, have identical attributes.
12. Attempted monopolization is a violation of antitrust law.
13. Predatory pricing is a legitimate marketing practice, not a form of
anticompetitive conduct.
14. A seller is prohibited from charging different prices to competing buyers for
identical goods or services.
15. A seller is prohibited from making an exclusive-dealing contract if the effect is
to tend to create a monopoly.
16. An exclusive-dealing contract is an agreement in which a seller agrees not to
sell to a buyer’s competitors.
17. A horizontal merger occurs when a company at one stage of production
acquires a company at a higher or lower stage of production.
18. Only the U.S. Department of Justice can prosecute violations of all of the
antitrust laws.
19. A joint effort by businesspersons to obtain legislative action can be exempt
from the antitrust laws.
4 TEST BANK—UNIT SIX: THE REGULATORY ENVIRONMENT
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20. U.S. antitrust laws may be applied to protect foreign consumers and
competitors from violations committed by U.S. business firms.
MULTIPLE CHOICE QUESTIONS
1. Congress enacts a statute to outlaw a specific type of anticompetitive business
agreement. Like other laws that regulate economic competition, this law is
referred to as
a. a federal trade commission act.
b. an antitrust law.
c. an interstate commerce act.
d. a suppressive restraint on trade.
2. Discount Retail Corporation may be engaging in conduct that violates the
Sherman Act. To bring an action against the firm requires that its conduct have
a significant impact on
a. international commerce.
b. Internet commerce.
c. interstate commerce.
d. intrastate commerce.
3. Soft Drink Corporation is charged with violating the Sherman Act through
conduct subject to the rule of reason. When applying the rule of reason in this
situation, a court will not consider
a. the purpose of the agreement.
b. the parties’ market ability to implement the agreement.
c. the effect of the agreement on international trade.
d. the potential effect of the agreement on competition.
Fact Pattern 27-1 (Questions 4–5 apply)
Natural Gas, Inc., and Olio Energy Company refine and sell natural gas. To limit the
supply of natural gas on the market and thereby raise prices, Natural Gas and Olio
Energy agree to buy “excess” supplies from dealers and “dispose” of it.
4. Refer to Fact Pattern 27-1. The agreement between Natural Gas and Olio
Energy is
a. a horizontal restraint.
b. none of the choices.
c. a resale price maintenance agreement.
d. a vertical restraint.
5. Refer to Fact Pattern 27-1. The Natural Gas and Olio Energy deal is
a. a deal that neither restrains trade nor harms competition.
b. a legal restraint of trade.
c. a per se violation of antitrust law.
d. subject to analysis under the rule of reason.
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6. Fine Food Company, Gourmet Cheeses, Inc., and Healthy Eats, Inc. agree to
exchange information and share advertising. This trade association is
a. a deal that neither restrains trade nor harms competition.
b. a legal restraint of trade.
c. a per se violation of antitrust law.
d. subject to analysis under the rule of reason.
7. The Association of Organic Food Producers, which does not include all organic
farmers and ranchers, refuses to deal with any parties who do not carry the
products of its members. This group boycott is
a. a situation that neither restrains trade nor harms competition.
b. a legal restraint of trade.
c. a per se violation of antitrust law.
d. subject to analysis under the rule of reason.
8. Office Warehouse Inc. and Paperclips Inc. are the chief competitors in their
market. They agree that Office Warehouse will operate only east of the
Mississippi River and Paperclips will operate only west of the waterway. Under
antitrust law, this is most likely
a. a per se violation.
b. a violation only if their competitors make similar deals.
c. a violation only if their customers agree to honor the deal.
d. not a violation.
9. Frictionless Lubricant Corporation and Grease, Inc., are the principal suppliers
of their product in their market. They agree that Frictionless will sell exclusively
to retailers and Grease will sell exclusively to wholesalers. Under antitrust law,
this is most likely
a. a per se violation.
b. a violation only if their competitors make similar deals.
c. a violation only if their customers agree to honor the deal.
d. not a violation.
10. Bill’s Barber Supplies, Inc., is the major distributor of barber supplies in the
state of Colorado. Bill’s closest competitor is Dona’s Beauty Products
Company, another Colorado firm. They agree that Bill’s will distribute its
products in western Colorado and Dona’s will distribute its products in the
eastern part of the state. This is
a. a group boycott.
b. a market division.
c. none of the choices.
d. a tying arrangement.
11. Smart Tablets, Inc., requires all distributors of its products to sell them at a
specified minimum price. This is a violation of antitrust law
a. if the anticompetitive effects outweigh the competitive benefits.
b. if the competitive benefits outweigh the anticompetitive effects.
c. under any circumstances.
d. under no circumstances.
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12. Golf & Tennis LLC makes and sells golf clubs, tennis racquets, and related
sporting goods. By selling its products at prices substantially below the normal
cost of production, Golf & Tennis hopes to drive its competitors from the
market. This is
a. market power.
b. predatory pricing.
c. price discrimination.
d. none of the choices.
13. A suit is filed against DrillBits Corporation, alleging that the firm committed the
offense of monopolization. To determine whether DrillBits has monopoly power
requires looking at
a. the price of a share of DrillBits’ stock.
b. DrillBits’ size alone.
c. DrillBits’ production methods and marketing techniques.
d. the relevant market.
14. Glassworx Corporation has exclusive control over the market for its products.
Under antitrust law, this is
a. a per se violation.
b. a violation if it acquired this power through “business judgment.”
c. a violation if it acquired this power through “anticompetitive means.”
d. not a violation.
15. Speedboat Corporation refuses to sell its products to Water World, Inc., a
recreational water products dealership. This is a violation of antitrust laws if it
a. has an anticompetitive effect on a particular market.
b. results in lower prices for consumers.
c. provides no economic benefits for consumers.
d. is likely to increase competition.
16. To drive its competitors out of a certain geographic segment of its market,
Fryin’ Potatoes, Inc., sets the prices of its products below cost for the buyers in
that area. This is
a. a refusal to deal.
b. none of the choices.
c. predatory bidding.
d. price discrimination.
17. Disc & Shoe Brakes Corporation, a brake manufacturer, sells its products to
Eastside Motors, a retailer, at lower prices than it charges Fast Brake, a com-
petitive retailer. This price discrimination is legal
a. under any circumstances.
b. unless its effect is to cause a competitor a loss of any business.
c. unless its effect is to substantially lessen competition.
d. unless there is no effect on a competitor.
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18. City Manufacturing Corporation conditions shipments of its products to Exurb
Stores, Inc., on Exurb’s agreement not to buy products from Regional Works
Company, City’s competitor. This is
a. an exclusive-dealing contract.
b. a tying arrangement.
c. none of the choices.
d. a price-fixing agreement.
19. Mango Corporation believes that Melon Corporation engages in anticompetitive
behavior in an attempt to drive Mango and its other competitors out of the
market. Antitrust laws can be enforced against Melon by
a. Mango and Melon’s other competitors.
b. Mango and Melon’s customers.
c. any federal government agency.
d. any business with a significant impact on interstate commerce.
20. Big American Oil Company joins with a foreign cartel to control the price of oil.
If the cartel has a substantial effect on U.S. commerce, a suit for violation of
U.S. antitrust laws can be brought against
a. Big American Oil and the foreign cartel.
b. the foreign cartel.
c. Big American Oil.
d. all of the choices.
CHAPTER 27: ANTITRUST LAW 11
ESSAY QUESTIONS
1. Under what circumstances would Quality Market, a small store in Rustic, an
isolated town, be considered a monopoly? If Quality Market is a monopoly, is it
in violation of antitrust law?
2. Fruit-of-the-Plant Seed Company is engaged in the agricultural seed industry in
the Midwest. The firm currently has about 40 percent of the market for these
products. GreatGro Seed Corporation competes with Fruit-of-the-Plant in the
same states. Carbonate has about 35 percent of the market. If Fruit-of-the-
Plant were to acquire the stock and assets of GreatGro, would Fruit-of-the-
Plant be in violation of any of the antitrust laws? If so, which one? Discuss fully.
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