chapter 38 - nacm - national association of credit...

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Chapter 38

Indicate whether the statement is true or false.

1. The purpose of antitrust legislation is to foster competition. a. True b. False

2. The Sherman Act is an example of legislation designed to curb anticompetitive business practices. a. True b. False

3. Market power is the ability of a firm to enter a given market. a. True b. False

4. A restraint of trade is an agreement between firms that has the effect of reducing anticompetitive business practices. a. True b. False

5. Monopoly power is an extreme amount of market power. a. True b. False

6. An act must substantially affect interstate commerce to violate antitrust law. a. True b. False

7. Unilateral conduct cannot result in a violation of antitrust law. a. True b. False

8. An agreement that is deemed a per se violation will be examined by a court to determine whether the agreement actually constitutes a reasonable restraint of trade. a. True b. False

9. Any agreement among competitors to fix prices is subject to evaluation under the rule of reason. a. True b. False

10. A group boycott that is intended to eliminate competition is legal. a. True b. False

11. A market division by class of customer between rival firms does not violate antitrust law. a. True b. FalseCopyright Cengage Learning. Powered by Cognero.

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Chapter 38

12. Territorial and customer restrictions are judged under the rule of reason. a. True b. False

13. Resale price maintenance agreements are per se violations of the Sherman Act. a. True b. False

14. A trade association practice or agreement that restrains trade is analyzed under the rule of reason. a. True b. False

15. Joint refusals to deal are not subject to scrutiny under the Sherman Act. a. True b. False

16. Section 1 of the Sherman Act condemns monopolization. a. True b. False

17. Predatory pricing involves selling a product at prices substantially above the fair market value. a. True b. False

18. A firm is not a monopolist unless it is the sole seller in a market. a. True b. False

19. Monopoly power may be proved by evidence that a firm used its power to control prices. a. True b. False

20. For products that are sold nationwide, the relevant geographic market is the entire globe. a. True b. False

21. Any action challenged as an attempt to monopolize must have been specifically intended to exclude competitors and garner monopoly power. a. True b. False

22. Monopoly power in and of itself constitutes the offense of monopolization. a. True b. False

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Chapter 38

23. Size alone determines whether a firm is a monopoly. a. True b. False

24. It is in society’s interest to condemn every firm that acquires a position of power. a. True b. False

25. The Clayton Act prohibits price discrimination. a. True b. False

26. Price discrimination occurs when a seller charges different prices to competing buyers for identical goods or services. a. True b. False

27. Under an exclusive-dealing contract, a seller promises a buyer a certain territory in which the buyer will have no direct competition. a. True b. False

28. A contract under which a seller forbids a buyer to purchase products from the seller’s competitors is a tying arrangement. a. True b. False

29. In determining the legality of a merger, market concentration has no significance. a. True b. False

30. When a small number of companies share a large part of a market, the market is concentrated. a. True b. False

31. The U.S. Department of Justice can prosecute violations of all of the antitrust laws. a. True b. False

32. A divestiture is an order to a company to cease, or divest itself of, its an-ticompetitive conduct. a. True b. False

33. Insurance companies are exempt from antitrust laws whenever state regulation exists a. True b. False


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Chapter 38

34. Labor unions can organize and bargain without violating anti trust law. a. True b. False

35. Any conspiracy—even if it occurs outside the United States—that has a substantial effect on U.S. commerce is within the reach of the Sherman Act. a. True b. False

Indicate the answer choice that best completes the statement or answers the question.

36. Congress enacts a statute to outlaw a specific type of anti competitive 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.

37. 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.

38. Sunrich Company can process solar energy into an inexpensive fuel for internal combustion engines. As an innovator in its market, Sunrich currently has the power to affect the price of its product. This is a. market power. b. predatory pricing. c. price discrimination. d. monopsony power.

39. North Mining Company and South Excavation Company agree to abide by the decisions of East Coast Financial Corporation as to their respective levels of production, markets, and prices, effectively reducing competition and increasing profits. This is most likely a. a common, legal, time-honored type of business arrangement. b. an illegal restraint on trade. c. an innovative, legally efficient approach to doing business. d. an outdated, but legal business trust.

40. Thermo Gas, Inc., and Uno Oil Corporation refine and sell gasoline and other petroleum products. To limit the supply of gas on the market and thereby raise prices, Thermo Gas and Uno Oil agree to buy “excess” supplies from dealers and “dispose” of it. This is a. a deal that neither restrains trade or harms

competition.


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Chapter 38

b. a legal restraint of trade. c. a per se violation of the Sherman Act. d. subject to analysis under the rule of reason.

41. 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.

Body care Corporation makes and sells Chem Med, the most prescribed name-brand blood pressure-lowering medication. Deja Vu Drugs, Inc., has the potential to make a generic version of the same drug.

42. Bodycare pays Deja Vu not to sell its product. This is a. a market division. b. a refusal to deal. c. an exclusive-dealing contract. d. a price-fixing agreement.

43. A court would most likely rule that the agreement between Bodycare and Deja Vu is a. a deal that neither restrains trade or harms

competition. b. a legal restraint of trade. c. a per se violation of the Sherman Act. d. subject to analysis under the rule of reason.

44. Rugged Bikes, Inc., makes and distributes Rugged-brand bicycles and accessories to authorized dealers, including Super Sports Stores, Inc. Super Sports operates dealerships in several locations. To insulate other dealers from direct competition, Rugged Bikes imposes limits on where Super Sports can sell Rugged products. This is a. a territorial restriction. b. a resale price maintenance

agreement. c. a unilateral refusal to deal. d. a price-fixing agreement.

45. Gearbox, Inc., a manufacturer of vehicle parts, refuses to sell to Motor Repair & Replace, Inc., a national vehicle service firm. Gearbox convinces Cam & Cylinder Company, a competitor, to do the same. This is a. a group boycott. b. an exclusive-dealing contract. c. a tying arrangement. d. a market division.

46. Agreements that are deemed per se violations of Section 1 of the Sherman Act include all of the following except a. a price-fixing agreement. b. a group boycott.Copyright Cengage Learning. Powered by Cognero.

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c. a trade association. d. a market division.

47. Dredgers, Inc., is the major wholesale distributor of heavy equipment in the state of Georgia. Its closest competitor is Excavators Company, another Georgia firm. The two firms agree that Excavators will operate in southern Georgia and Dredgers will operate in northern Georgia. This is a. a group boycott. b. a market division. c. a price-fixing agreement. d. a tying arrangement.

48. Fiesta Food Company, Gourmet Cheeses, Inc., and Healthy Eats, Inc. agree to exchange information and share advertising. This trade association agreement is a. a deal that inherently 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.

49. The Association of Organic Food Growers, 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.

50. 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 anti trust law, this market division 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.

51. Pads & Pods Corporation requires all distributors of its products to sell the products at specified minimum prices. This resale price maintenance agreement is a. a per se violation of antitrust law. b. a legal restraint of trade. c. subject to evaluation under the rule of reason. d. not subject to antitrust law.

52. Spa Selectiva Company makes and sells beauty salon supplies. By selling its product at prices substantially below the normal cost of production, Spa Selectiva hopes to drive its competitors from the market. This is a. predatory bidding.Copyright Cengage Learning. Powered by Cognero.

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b. predatory pricing. c. price discrimination. d. price-fixing.

53. Frozen Confections Corporation makes and sells ice cream under a variety of brand names. Frozen wants to merge with Grocers Products Company, its main competitor. In considering a challenge to the deal, a court looks at the relevant product market. This most likely includes ice cream and a. no other products. b. products that are not identical but are related, such as spin-

offs. c. products that are reasonably interchangeable. d. products with identical attributes only.

54. A suit is filed against AgriSeeds Corporation, alleging that the firm committed the offense of monopolization. To determine whether AgriSeeds has monopoly power requires looking at a. the company’s size alone. b. the marketing practices of AgriSeeds’s competitors. c. AgriSeeds’s marketing techniques. d. the relevant market.

55. Glass worx Corporation has exclusive control over the market for its products. Under anti trust 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.

56. Healthcare Device, Inc., has exclusive control over the market for its product. Healthcare Device’s market power is most likely a. “an unfair or deceptive act or practice.” b. a per se violation. c. not a violation. d. subject to further evaluation.

57. To acquire monopoly power in its market, Global Condiments, Inc., sets its prices substantially below the normal costs of production. Under antitrust law, this is a. a per se violation. b. a violation if the firm’s competitors set similar prices. c. a violation if the firm thereby acquires monopoly power. d. not a violation.

58. Speedee Snoboards, Inc., refuses to sell its products to Timber Mountain Winter Sports Stores, Inc., a retail snowboard dealership. This is a. an exclusive-dealing contract. b. a territorial restriction. c. attempted monopolization.


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Chapter 38

d. a unilateral refusal to deal.

59. Fresh Vegetables, Inc., a wholesaler, refuses to sell its produce to Good Foods Marketplace, Inc., a retailer. This is a. “an unfair or deceptive act or practice.” b. a per se violation. c. not a violation. d. subject to analysis under the rule of

reason.

60. An anti trust action is brought against Carrier Transport Company, alleging the offense of attempted monopolization. To be guilty of this offense, Carrier’s attempt must have a. a dangerous probability of success. b. a deadly guaranty of success. c. a distant possibility of success. d. a distinct improbability of success.

61. To prevent its competitors from obtaining sufficient supplies to make their products, Continental Steel, Inc., uses its market power to increase the prices of those supplies. This is a. price discrimination. b. business judgment. c. predatory bidding. d. predatory pricing.

62. Earth grown Flora, Inc., is one of many producers of cut flowers. Earthgrown refuses to sell its products to Florist Shops Corporation. Under anti trust law, this refusal is most likely a. a per se violation. b. a violation if its competitors make similar deals. c. a violation if it thereby acquires monopoly power. d. not a violation.

63. HVAC Parts Company charges different buyers different prices for identical goods. HVAC’s prices are subject to evaluation under a. the Clayton Act. b. the Federal Trade Commission Act. c. the Sherman Act. d. no antitrust law.

64. By contract, Oil Shale Corporation forbids Petro Refining, Inc., a wholesale buyer of Oil Shale’s products, from purchasing the products of its competitors. This exclusive-dealing contract is not permitted a. under any circumstances. b. if its effect is to cause a competitor a loss of any

business. c. if its effect is to substantially lessen competition. d. unless there is no effect on a competitor..


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Chapter 38

65. To drive its competitors out of a certain geographic segment of its market, Drone Drives, Inc., sets the prices of its products below cost for the buyers in that area. This is a. price-fixing. b. business acumen. c. predatory pricing. d. price discrimination.

66. Pump Makers Inc. makes pumps for fire trucks and conditions shipments of its products to Quality Motors Corporation—a maker of fire trucks—on Quality’s agreement to buy additional pumps only from Pump Makers. This is a. an exclusive-dealing contract. b. a tying arrangement.. c. price discrimination. d. a group boycott.

67. Grip-All Tires, Inc., conditions the sale of one of its products on Harvey’s Service Stores agreeing to buy another of Grip-All’s products. This deal is legal a. depending on its purpose and the effect on competition. b. depending on production and transportation costs. c. under any circumstances. d. under no circumstances.

68. Clear View Corporation offers to sell its flat-panel display monitors to Best Computer & Video, Inc., only if Best agrees to buy Clear View’s servicing of its products along with the monitors. This is a. an exclusive-dealing contract. b. a tying arrangement. c. price discrimination. d. business acumen.

69. Gaucho Ranchland Supplies Corporation believes that Vaquero Stock & Equipment Corporation engages in anti competitive behavior in an attempt to drive Gaucho, its chief competitor, out of the market. Anti trust laws can be enforced against Vaquero by a. only a disinterested third party. b. Congress. c. Gaucho. d. none of the choices.

70. Domestic Oil Company joins with a foreign cartel to control the price of oil. The cartel has a substantial effect on U.S. commerce. A suit for violation of U.S. anti trust laws can be brought against a. Domestic Oil and the foreign cartel. b. the foreign cartel. c. Domestic Oil. d. all of the choices.

71. Precision Parts Corporation and Aligned Gears, Inc., are competitors selling certain machine parts that are otherwise Copyright Cengage Learning. Powered by Cognero.

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generally unattainable in their geographic market. This market includes the states of Minnesota, North Dakota, and South Dakota. Precision Parts and Aligned Gears agree that Precision Parts will no longer sell in Minnesota and that Aligned Gears will no longer sell in North and South Dakota. Have Precision Parts and Aligned Gears violated any antitrust law? If so, which one? Explain. If they had divided their market by type of customer rather than geographic are, would the result be the same? Why or why not?

72. Under what circumstances would Small’s Market, a little store in Rustic, an isolated town, be considered a monopoly? If Small’s Market is a monopoly, is it in violation of antitrust law?


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Chapter 38

Answer Key

1. True

2. True

3. False

4. False

5. True

6. True

7. False

8. False

9. False

10. False

11. False

12. True

13. False

14. True

15. False

16. False

17. False

18. False

19. True

20. False

21. True

22. False

23. False

24. False

25. True


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Chapter 38

26. True

27. False

28. False

29. False

30. True

31. False

32. False

33. True

34. True

35. True

36. b

37. c

38. a

39. b

40. c

41. c

42. d

43. c

44. a

45. a

46. c

47. b

48. d

49. c

50. a

51. cCopyright Cengage Learning. Powered by Cognero.

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52. b

53. c

54. d

55. c

56. d

57. c

58. d

59. d

60. a

61. c

62. d

63. a

64. c

65. d

66. a

67. a

68. b

69. c

70. d

71. Precision Parts and Aligned Gears have violated antitrust law. The major antitrust law they have violated is the Sherman Act, Section 1.Precision Parts and Aligned Gears are engaged in interstate commerce, and the agreement to divide marketing territories between them is a market division—a contract in restraint of trade. This sort of concerted action reduces the costs to the competitors and allows each of them to increase the prices of the parts sold in their respective territories.The U.S. Department of Justice (DOJ) could seek criminal penalties against each corporation, including fines and imprisonment. In addition, the DOJ could institute civil proceedings to restrain this conduct.If these competitors had divided their market by type of customers—retailers and wholesalers, or manufacturers and distributors, for example—the result would most likely be the same.

72. The elements of the offense of monopolization under the Sherman Act include monopoly power and its willful Copyright Cengage Learning. Powered by Cognero.

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Chapter 38

acquisition. Market domination that results from legitimate competitive behavior (such as foresight, innovation, skill, good management, or, as in this problem, isolation) is not a violation. Also, size alone does not determine whether a firm is a monopoly—size in relation to the market is what matters.A small store like Small’s Market in an isolated town like Rustic has a monopoly if it is the only store serving that market.Monopoly involves the power to affect prices and output. If a firm has sufficient market power to control prices and exclude competition, that firm has monopoly power. Monopoly power in itself is not a violation of the Sherman Act. The offense also requires an intent to acquire or maintain that power through anti competitive means.


chapter 38 - nacm - national association of credit...

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