235
C H A P T E R 1 6
Antitrust
TRUE-FALSE QUESTIONS
1. Courts apply the per se rule when reviewing most tying arrangements and will, therefore, consider
business justifications proffered by the tying firm.
2. Without further inquiry, boycotts are per se illegal under the Sherman Act.
3. Patented or copyrighted products may confer market power on the owner in tying cases when there
are high switching costs.
4. In order to avoid an unworkable construction of the Sherman Act, the courts have construed Section
1 to prohibit only those restraints of trade that unreasonably restrict competition.
5. In order to find a violation of the Sherman Act, courts require evidence of an explicit agreement to
violate the law.
6. Courts look more favorably on reductions in intrabrand competition when there is vigorous
interbrand competition that can prevent the reduction in intrabrand competition from harming
consumers.
7. Unilateral conduct may violate Section 1 of the Sherman Act under some circumstances.
236 MANAGERS AND THE LEGAL ENVIRONMENT
8. Horizontal agreements among competitors to avoid competition on nonprice matters cannot be a
violation of Section 1 of the Sherman Act.
9. Firms can incur liability under Section 2 of the Sherman Act by acquiring monopoly power through
corporate mergers or acquisitions.
10. Vertical market division between a franchisor and a franchisee may be lawful when interbrand
competition is enhanced by the limitation on intrabrand competition.
11. The Supreme Court considers market divisions between competing firms to be so inherently anti–
competitive as to constitute per se violations of the Sherman Act.
12. Market power is defined as the power to control prices or exclude competition in a relevant market.
13. The merger of an airplane manufacturer and an airplane engine manufacturer would normally be
considered a conglomerate merger.
14. The Robinson-Patman Act prohibits a manufacturer from making any price discrimination among its
customers.
15. Section 5 of the Federal Trade Commission Act is broader than the other antitrust laws.
16. Local municipalities may not be held liable for antitrust damages and are not subject to equitable
remedies such as injunctions.
17. Sections 1 and 2 of the Sherman Act have extraterritorial reach.
18. Even when a U.S. court finds a foreign corporation in violation of the antitrust laws, any award of
damages is meaningless without foreign enforcement of the award unless the foreign corporation has
assets in the U.S. that can be attached to satisfy the judgment.
19. One of the major differences between U.S. and European Union competition laws is the European
Union’s treatment of horizontal agreements.
20. The European Union takes a stricter view of vertical territorial restraints because of their tendency to
impede continent-wide market integration.
MULTIPLE-CHOICE QUESTIONS
1. A[n] ______ is made up of product or service offerings by different manufacturers or sellers that are
economically interchangeable and may therefore be said to compete.
A. interchangeable-brand product market
B. market power interchange
C. multiple-brand product market
D. A consumer surplus brand market
2. Section 2 of the Sherman Act prohibits
A. price discrimination.
B. monopolies and attempts to monopolize.
C. every contract, combination or conspiracy in restraint of trade.
D. mergers that threaten competition.
3. Section 7 of the Clayton Act prohibits
A. price discrimination.
B. monopolies and attempts to monopolize.
C. every contract, combination or conspiracy in restraint of trade.
D. mergers that threaten competition.
4. The Robinson-Patman Act prohibits
A. certain price discrimination.
B. monopolies and attempts to monopolize.
C. every contract, combination or conspiracy in restraint of trade.
D. mergers that threaten competition.
5. The __________ concludes that market forces defeat most anticompetitive practices.
A. Chicago School
B. Antitrust School
C. Contra-antitrust School
D. Economic Forecasting Model
6. _________ competition is competition between companies producing the same type of product.
A. Intrabrand
B. Interbrand
C. Vertical
D. Oriented
7. What was the result in Williamson Oil Co. v. Philip Morris USA, the case in the text in which it was
alleged that tobacco companies had conspired to fix prices?
A. The suit was dismissed because the plaintiffs could not establish any “plus factor” needed to
proceed.
B. The suit was allowed to proceed because no “plus factor” was needed.
C. The suit was allowed to proceed because “plus factors” were established by plaintiffs.
D. The suit was dismissed because the plaintiffs lacked standing.
8. What was the first U.S. antitrust law?
A. The Hart-Scott-Rodino Antitrust Improvements Act
B. The Robinson-Patman Act
C. The Clayton Act
D. The Sherman Act
9. Which of the following is true regarding private suits to enforce the Sherman Act?
A. Private plaintiffs may recover three times the damages they have sustained as a result of
violations of the act.
B. Liability is joint and several among all conspirators.
C. There is no requirement of standing.
D. Private plaintiffs may recover three times the damages they have sustained as a result of
violations of the act, and liability is joint and several among all conspirators.
10. Which of the following is an approach to analyzing the reasonableness of a restraint of trade?
A. Totality rule
B. Per se rule
C. Rule of reason
D. Both the per se rule and the rule of reason
11. Under which of the following situations will courts usually find pricing legal?
A. When the prices are above average variable cost but below average total cost and the company
has excess capacity.
B. When the prices are above average variable cost but below average total cost and the company
does not have excess capacity.
240 MANAGERS AND THE LEGAL ENVIRONMENT
C. When the prices are below average variable cost and below average total cost and the company
does not have excess capacity.
D. Only when prices are above both average variable cost and average total cost.
12. An equilibrium in which scarce societal resources are allocated to the production of various goods
and services up to the point where the cost of the resources equals the benefit society reaps form
their use is _________.
A. productive efficiency
B. allocative efficiency
C. true efficiency
D. product efficiency
13. Which of the following refers to the principle that unless barriers to entry or other factors make a
market structurally conducive to monopolization, pricing below cost is not a Sherman Act violation,
regardless of whether the defendant had monopolistic intent?
A. The principle of certainty
B. The principle of uncertainty
C. The rule of improbability
D. The rule of impossibility
14. Which of the following is true regarding monopoly law in China?
A. Each offense is specifically set forth with no catch-all provisions.
B. It is not used against foreign investors.
C. It prevents behavior classified as abuse of dominant market position.
D. China lacks an anti-monopoly law although drafting has been in process for several years.
15. Which of the following is not an illegal horizontal market division?
A. Division by a class of customers
B. Division by exclusive distributorships
C. Division by geographic territory
D. Restricting product output
16. Which of the following is true regarding enforcement under the antitrust laws?
A. The U.S. Department of Justice and the Federal Trade Commission act as enforcement agents for
the federal antitrust laws.
B. Only the U.S. Department of Justice acts as an enforcement agent for the federal antitrust laws.
C. Only the Federal Trade Commission acts as an enforcement agent for the federal antitrust laws.
D. The U.S. Department of Justice and the Consumer Fairness Commission act as enforcement
agents for the federal antitrust laws.
17. Which of the following is true regarding conscious parallelism?
A. Proof, standing alone, that firms changed prices at the same time is sufficient to prove a
horizontal conspiracy to set prices regardless of whether the firms initially set prices at the same
levels.
B. Proof, standing alone, that firms initially set prices at the same levels is sufficient to prove a
horizontal conspiracy to set prices regardless of whether the firms later changed prices at the same
time.
C. Showing that firms consistently set prices at the same levels and change prices at the same time
is sufficient to prove a horizontal conspiracy to set prices.
D. Merely showing that firms consistently set prices at the same levels and change prices at the
same time is insufficient to prove a horizontal conspiracy to set prices.
18. For a monopoly to be found illegal, which of the following is relevant after market power is
established?
A. Single brand market.
B. Multiple brand market.
C. Collusion.
D. Monopolistic intent.
19. If a manufacturer of television sets acquires a magazine publisher, it will be a
A. vertical merger
B. horizontal merger
C. conglomerate merger
D. product-line
20. The agreement of all the commercial airlines not to lower their fares would be an example of a
A. vertical restraint of trade.
242 MANAGERS AND THE LEGAL ENVIRONMENT
B. horizontal restraint of trade.
C. tying arrangement.
D. monopoly.
21. With a(n) ________ distributorship, a manufacturer limits itself to a single distributor in a given
territory.
A. dual
B. exclusive
C. franchise
D. market-power
22. In a ________ action under the Sherman Act, state attorneys general may bring civil actions for
injuries sustained by residents of their respective states.
A. parens patriae
B. private attorneys general
C. Herfindahl-Hirschman
D. resale price maintenance
23. Horizontal price-fixing, such as an agreement between retailers to set a common price for a product,
is the classic example of a(n) ________ violation of Section 1 of the Sherman Act.
A. per se
B. intentional
C. rule of reason
D. willful
24. A manufacturer that sells its goods both wholesale and at retail is called a(n)
A. conglomerate merger.
B. dual distributor.
C. essential facility.
D. franchise.
25. Which of the following is not true regarding Section 2 of the Sherman Act?
A. Unilateral conduct may violate Section 2.
B. Section 2 allows the mere possession of monopoly power.
C. A firm violates Section 2 even if attains the monopoly power by superior performance.
D. The offense of monopolization has two elements: monopoly power and proof that the defendant
willfully acquired or maintained that power through anticompetitive acts.
26. Which of the following is a component of a market?
A. A product component
B. A geographic component
C. A defined component
D. Both a product component and a geographic component
27. In the European Union, the principal rules of competition law are set forth in which of the
following?
A. The Treaty of Amsterdam and the Merger Control Regulation
B. The European Union Regulation and the Treaty of Amsterdam
C. Only the European Union Regulation
D. Only the Treaty of Amsterdam
28. Which of the following is the objective of the rule of reason rule?
A. To determine whether the requirements of the per se rule have been satisfied.
B. To determine whether, on balance, the activity at issue promotes or restrains competition.
C. To determine whether in a particular situation a horizontal price fixing has actually harmed
consumers.
D. To determine if providers of a good acted reasonably in engaging in a boycott.
29. Which of the following was the result before the U.S. Supreme Court in Illinois Tool Works, Inc. v.
Independent Ink, Inc., the case in the text involving whether the fact that a product in a tying
arrangement is patented creates a presumption of market power in that product?
A. The court upheld earlier law and ruled that the existence of a patent in a tying arrangement
creates a presumption of market power.
B. The court ruled that a tying arrangements involving a patented product should be evaluated under
the rule of reason standard rather than under the per se rule.
244 MANAGERS AND THE LEGAL ENVIRONMENT
C. The court ruled that a tying arrangements involving a patented product should be evaluated under
the per se rule rather than under the rule of reason standard.
D. Overturning prior law the court ruled that the matter was irrelevant because all tying
arrangements are illegal regardless of whether or not a patented product is involved.
30. Which of the following is not a factor used in determining the anticompetitive effects of a horizontal
merger under the Clayton Act?
A. The level of concentration in the market.
B. The market shares of the firms involved in the transaction.
C. Whether the market is structurally conducive to anticompetitive behavior.
D. The market price of the buyer’s stock.
Fact Pattern 16-1 (Questions 31-32 apply)
Patty owns and operates a gym. Her main competitor is Jason who runs another gym three streets
from her. They cater to the same clientele. Patty and Jason keep trying to undercut each other in
order to attract customers. One evening Patty sees Jason in the local coffee shop and sits down to
talk with him. They discuss how difficult it is to do upgrades and make money with the prices they
are charging. Patty winked at Jason and said “You know, charging $80 per month would enable a
good profit margin.” The next day Patty started charging $80 per month as did Jason. Customers
started complaining particularly after another coffee drinker and gym customer at a table sitting at a
table near Patty and Jason made it known that they had seemed very cozy. Patty and Jason deny any
agreement to set the same price for gym membership. They avow that the decision was made by
each of them independently.
31. Refer to fact pattern 16-1. Frank, a first year law student and gym member, is suspicious; but he
does not know what violation to claim. Which of the following is the correct term for an illegal
agreement by providers of the same good or service to charge a set fee?
A. Horizontal price fixing
B. Vertical price fixing
C. Substantial price fixing
D. Predatory price fixing
32. Refer to fact pattern 16-1. Is the fact that no express words passed between Patty and Jason a
defense to charges of antitrust violation?
A. Yes, because direct evidence is required in order to establish an illegal agreement to fix prices.
B. Yes, both because direct evidence is required in order to establish an illegal agreement to fix
prices and because the courts require evidence of an explicit agreement in such cases.
C. It is a defense to charges of criminal antitrust violations, but not to civil antitrust violations.
D. No, because a knowing wink can mean more than words.
CHAPTER 16 ANTITRUST 245
33. Molly runs the best dog grooming shop in town. All the dogs love her, as do the owners. She is
particularly popular because of a special type of dog biscuit she gives for treats that provides such
energy that owners have been known to try them too. Slowly but surely all the other dog grooming
shops start to go out of business. Molly claims surprise when one day she is charged with
unlawfully monopolizing the dog grooming business. Which of the following would be her best
defense?
A. That she primarily provided biscuits, not grooming.
B. That she did not intentionally obtain monopoly power or retain it through anticompetitive acts.
C. That she did not intentionally obtain monopoly power, and that it was legally acceptable for her
to willfully attempt to keep it.
D. That services, not goods, were involved.
34. Happy City has three distributors of milk products. Sam, who owns a grocery store, angers one of
the distributors when he insists that additional milk be delivered on Christmas Eve. He annoys
another distributor when he makes a delivery driver wait to deliver milk. The three distributors get
together and discuss the fact that they like all the other grocers in town better than Sam. One of
them has an idea that they should stop selling milk products to Sam. The milk distributors call their
friends the meat distributors and talk them into not selling meat to Sam either. Sam hears about the
plot and wants to stop it. Which of the following best describes the agreements between the
distributors of milk and meat to not sell to Sam?
A. It would likely be a boycott
B. It would likely be a horizontal distribution agreement
C. It would likely be a vertical distribution agreement
D. There is no descriptive term in antitrust law since this is simply an agreement among sellers who
do not legally have to sell to any particular buyer.
Fact Pattern 16-2 (Questions 35-36 apply)
Number One Oil Company sells gas to various gas stations. Number One requires that the gas
stations agree that they will not sell gas above a certain maximum price set by Number One. Some
of the gas stations are unhappy with the arrangement because they wish to sell gas at any price they
choose. Unfortunately for them, other oil companies in the region also impose maximum price
restrictions. The station owners begin investigating whether any antitrust violation could be
involved.
35. Refer to fact pattern 16-2. Which of the following best describes the situation by which Number
One Oil Company and other companies impose maximum price restrictions?
A. Horizontal price-fixing
246 MANAGERS AND THE LEGAL ENVIRONMENT
B. Vertical price-fixing
C. Adverse price-fixing
D. There is no antitrust term for the practice.
36. Refer to fact pattern 16-2. Which of the following is true regarding whether the imposition of
maximum prices under the facts presented would be an antitrust violation?
A. The U.S. Supreme Court has ruled that such restrictions do not violate federal antitrust law.
B. The imposition of maximum pricing restrictions is per se illegal under federal antitrust law.
C. A rule of reason approach is used in determining whether the imposition of maximum prices is
illegal under federal antitrust law.
D. A presumption of reasonableness approach is used in determining whether the imposition of
maximum prices is illegal under federal antitrust law.
ESSAY QUESTIONS
1. What must a plaintiff demonstrate for liability to attach under Section 1 of the Sherman Act?
2. What types of price-fixing agreements are considered horizontal price-fixing?
3. What three factors does a court primarily look to in determining if a horizontal merger is permissible
once the market is defined? Discuss fully.
4. How would a plaintiff establish the existence of a tying arrangement, and under what laws may tying
arrangements be challenged?
CHAPTER 16 ANTITRUST 247
5. Explain the purpose and scope of the Robinson-Patman Act. What factors will courts use in
determining whether or not a violation has occurred? Discuss fully.
6. Discuss the basic U.S. rule for evaluating whether monopolistic action under the Sherman Act is
violated by acts affecting U.S. imports where the anticompetitive conduct occurs offshore, but the
adverse impact is felt in the United States. When, if ever, is conflicting law between a foreign
country and the U.S. a defense?
8. Set forth when a monopolist has a duty to deal with its rivals and the four elements considered in
determining such a duty.
