Law, Business 7e (Cheeseman) Chapter 46 Antitrust Law 1) The Robinson-Patman Act was the first antitrust law enacted in the United States. Answer: FALSE Diff: 2 Topic: Federal Antitrust Laws 2) The first antitrust laws were passed in the late 1800s. Answer: TRUE Diff: 1 Topic: Federal Antitrust Laws 3) The aggressiveness with which antitrust laws are enforced differs considerably based on the politics of the President of the United States. Answer: TRUE Diff: 1 Topic: Federal Antitrust Laws 4) Antitrust laws were designed to limit anticompetitive behavior. Answer: TRUE Diff: 1 Topic: Federal Antitrust Laws 5) Most of the major antitrust statutes provide for both civil and criminal penalties. Answer: FALSE Diff: 1 Topic: Federal Antitrust Laws 6) All federal criminal antitrust enforcement is done by the Justice Department. Answer: FALSE Diff: 1 Topic: Federal Antitrust Laws 7) A consumer can recover from a violation of an antitrust law, but only if he or she deals directly with the violator. Answer: TRUE Diff: 1 Topic: Federal Antitrust Laws 8) Under the rule of reason for violations under the Sherman Act, certain restraints of trade can be legal in some circumstances and illegal in others. Answer: TRUE Diff: 1 Topic: Section 1 of the Sherman Act - Restraints of Trade 1 2010 Pearson Education, Inc. publishing as Prentice Hall 9) The Sherman Act is the only major antitrust act with criminal sanctions. Answer: TRUE Diff: 2 Topic: Section 1 of the Sherman Act - Restraints of Trade 10) A per se violation of the Sherman Act is illegal regardless of the circumstances in which the activity took place. Answer: TRUE Diff: 1 Topic: Section 1 of the Sherman Act - Restraints of Trade 11) A corporation may be fined up to $100 million per violation of the Sherman Act. Answer: FALSE Diff: 2 Topic: Section 1 of the Sherman Act - Restraints of Trade 12) Reasonable restraints of trade are lawful under the rule of reason. Answer: TRUE Diff: 1 Topic: Rule of Reason 13) The history and duration of the restraint have no impact on applying the rule of reason. Answer: FALSE Diff: 2 Topic: Rule of Reason 14) A restraint that is automatically in violation of Section 1 of the Sherman Act is said to be a per se violation. Answer: TRUE Diff: 1 Topic: Rule of Reason 15) Under the Sherman Act, some horizontal price-fixing arrangements are allowed under the rule of reason. Answer: FALSE Diff: 1 Topic: Horizontal Restraints of Trade 16) Under the Sherman Antitrust Act, division of markets on a product line basis is a rule of reason violation, whereas division of markets on a geographic basis is a per se violation. Answer: FALSE Diff: 2 Topic: Horizontal Restraints of Trade 2 2010 Pearson Education, Inc. publishing as Prentice Hall 17) Horizontal price-fixing occurs when the competitors in the same type of business agree to set the price of goods or services they sell. Answer: TRUE Diff: 2 Topic: Horizontal Restraints of Trade 18) A refusal to deal is the same as a group boycott. Answer: TRUE Diff: 2 Topic: Horizontal Restraints of Trade 19) Today, resale price maintenance is a per se violation for both price floors and price ceilings. Answer: FALSE Diff: 1 Topic: Vertical Restraints of Trade 20) Vertical restraints on trade occur when two or more parties on different levels of distribution enter into a contract. Answer: TRUE Diff: 1 Topic: Vertical Restraints of Trade 21) If Any Town Blinds, a miniblind manufacturer, sells its miniblinds to retailers that agree to resell them at the prices set by the manufacturer, then Any Town Blinds would be involved in a violation of Section 1 of the Sherman Act. Answer: TRUE Diff: 2 Topic: Resale Price Maintenance 22) The rule of reason has no application when determining the legality of nonprice vertical restraints on trade. Answer: FALSE Diff: 2 Topic: Nonprice Vertical Restraints 23) A firm can unilaterally decide not to deal with another firm without violating the law. Answer: TRUE Diff: 2 Topic: Defenses to Section 1 of the Sherman Act 24) The doctrine of conscious parallelism states that if competing firms reach similar independent judgments to not deal with a particular supplier, it will be considered evidence of a conspiracy. Answer: FALSE Diff: 2 Topic: Defenses to Section 1 of the Sherman Act 3 2010 Pearson Education, Inc. publishing as Prentice Hall 25) Under the Noerr doctrine two or more persons may petition the government to enact laws or take other action without violating the antitrust laws. Answer: TRUE Diff: 2 Topic: Defenses to Section 1 of the Sherman Act 26) To be liable for a Section 2 violation of the

Sherman Antitrust Act, there must be concerted action between two or more firms. Answer: FALSE Diff: 2 Topic: Section 2 of the Sherman Act - Monopolization 27) In a Sherman Act Section 2 action, a court need not define both the relevant geographic market and the relevant product or service market. Answer: FALSE Diff: 2 Topic: Section 2 of the Sherman Act - Monopolization 28) Under Section 2 of the Sherman Act, possession of monopoly power is wrongful regardless of how the monopoly power was obtained. Answer: FALSE Diff: 2 Topic: Section 2 of the Sherman Act - Monopolization 29) For an antitrust action to be sustained under Section 2 of the Sherman Act, the defendant must possess monopoly power in the relevant market. Answer: TRUE Diff: 1 Topic: Section 2 of the Sherman Act Monopolization 30) The U.S. government antitrust case against Microsoft was based upon alleged violations of both Sections 1 and 2 of the Sherman Act. Answer: TRUE Diff: 2 Topic: Section 2 of the Sherman Act - Monopolization 31) The term relevant market is important in determining a defendant's monopoly power. Answer: TRUE Diff: 2 Topic: Defining the Relevant Market 32) Plaintiffs often argue for a narrow definition of the defendant's product or service market. Answer: TRUE Diff: 2 Topic: Defining the Relevant Market 4 2010 Pearson Education, Inc. publishing as Prentice Hall 33) If a hardware store chain on the East Coast merged with a hardware store chain on the West Coast, it would be a horizontal merger. Answer: FALSE Diff: 1 Topic: Section 7 of the Clayton Act - Mergers 34) If a steel company acquired an iron mining company, it would be a vertical merger. Answer: TRUE Diff: 1 Topic: Section 7 of the Clayton Act - Mergers 35) If a textbook publisher acquired a paper mill, it would be a backward vertical merger. Answer: TRUE Diff: 2 Topic: Section 7 of the Clayton Act Mergers 36) The potential competition theory can be used under the Clayton Act to prevent mergers of companies that do not currently compete in each other's markets, but are perceived as having the potential to compete with one another. Answer: TRUE Diff: 2 Topic: Section 7 of the Clayton Act Mergers 37) Section 7 of the Clayton Act gave the federal government the power to prevent anticompetitive mergers. Answer: TRUE Diff: 1 Topic: Section 7 of the Clayton Act - Mergers 38) The traditional way to determine the line of commerce that will be affected by a merger is by applying the functional interchangeability test. Answer: TRUE Diff: 2 Topic: Section 7 of the Clayton Act - Mergers 39) The failing company doctrine is not a valid defense to a Section 7 Action. Answer: FALSE Diff: 2 Topic: Defenses to Section 7 Actions 40) If a merger allows two or more small companies to merge without liability under Section 7, then the court will permit the merger to take place. Answer: TRUE Diff: 2 Topic: Defenses to Section 7 Actions 5 2010 Pearson Education, Inc. publishing as Prentice Hall 41) The Clayton Act governs tying arrangements involving goods only. Answer: FALSE Diff: 1 Topic: Section 3 of the Clayton Act - Tying Arrangements 42) Where quality control of products is an issue, tying arrangements can be legal. Answer: TRUE Diff: 2 Topic: Section 3 of the Clayton Act - Tying Arrangements 43) The cost-justification defense to price discrimination applies only to the cost of manufacture, not to shipping or advertising. Answer: FALSE Diff: 2 Topic: Section 2 of the Clayton Act - Price Discrimination 44) The meeting-the-competition defense does not allow a seller to lower his price below that of his competitor even if it is discriminatory. Answer: TRUE Diff: 1 Topic: Section 2 of the Clayton Act - Price Discrimination 45) Only a seller may be held liable under the price discrimination laws. Answer: FALSE Diff: 2 Topic: Section 2 of the Clayton Act - Price Discrimination 46) Quantity or volume discounts are lawful to the extent they are supported by cost savings. Answer: TRUE Diff: 2 Topic: Section 2 of the Clayton Act - Price Discrimination 47) Price discrimination is lawful if it is in response to "changing conditions in the market or the marketability of the goods." Answer: FALSE Diff: 2 Topic: Defenses to Section 2(a) Actions 48) Treble damages are available in a civil suit for violation of Section 5 of the Federal Trade Commission Act. Answer: FALSE Diff: 2 Topic: Section 5 of the Federal Trade Commission Act - Unfair Methods of Competition 6 2010 Pearson Education, Inc. publishing as Prentice Hall 49) A party can violate Section 5 of the Federal Trade Commission Act, by violating the "spirit" of the antitrust laws even though no specific provision of the antirust laws is violated. Answer: TRUE Diff: 2 Topic: Section 5 of the Federal Trade Commission Act - Unfair Methods of Competition 50) Labor unions are exempt from antitrust laws.

Answer: TRUE Diff: 1 Topic: Exemptions from Antitrust Laws 51) Professional baseball and football have been found to be exempt from antitrust laws. Answer: FALSE Diff: 1 Topic: Exemptions from Antitrust Laws 52) The primary source of the antitrust laws is: A) the United States Constitution B) the Uniform Commercial Code C) the Federal Trade Commission D) Federal Statutes E) common law Answer: D Diff: 1 Topic: Overview of Federal Antitrust Laws Skill: Legal Concepts 53) Which of the following is not one of the antitrust statutes? A) the Sherman Act B) the Clayton Act C) the Federal Trade Commission Act D) the Fair Competition Regulation Act E) the Robinson-Patman Act Answer: D Diff: 2 Topic: Overview of Federal Antitrust Laws Skill: Legal Concepts 7 2010 Pearson Education, Inc. publishing as Prentice Hall 54) The antitrust laws were passed in response to general changes in the national business environment caused by: A) the United States gaining independence from England B) the expansion of the United States west of the Mississippi River following the Louisiana Purchase C) the rise of the railroads and industrialization in the latter part of the 1800s D) the stock market crash of 1929 and the Great Depression E) the rapid boom in consumer products following the Second World War Answer: C Diff: 2 Topic: Overview of Federal Antitrust Laws Skill: Legal Concepts 55) The maximum fines, per violation, that can be imposed in a Sherman Act criminal case are: A) $1 million for an individual and $10 million for a corporation B) $10 million for both individuals and corporations C) $10 million for a corporation and $350,000 for an individual D) $3.5 million for a corporation and $350,000 for an individual E) $1 million for an individual and $3 million for a corporation Answer: C Diff: 3 Topic: Antitrust Penalties Skill: Legal Concepts 56) What is the usual effect of a nolo contendere plea by the defendant in a government antitrust case? A) A penalty imposed on the defendant without an admission of guilt. B) A penalty imposed on the defendant without an admission of guilt and automatic liability to any private plaintiffs in related cases. C) A requirement that a defendant cease business in the line of business or market where the violation occurred. D) An admission of guilt accompanied by a lighter penalty than if a verdict of guilty were issued following a trial. E) No penalty in the current case, but an increased penalty for any similar future violation. Answer: A Diff: 3 Topic: Antitrust Penalties Skill: Legal Concepts 8 2010 Pearson Education, Inc. publishing as Prentice Hall 57) Which of the following is true about restraints of trade? A) Under the per se rules, all restraints of trade are illegal. B) Under the rule of reason, all restraints of trade are illegal. C) Some acts are illegal per se, but other actions must be judged by the rule of reason. D) Pricefixing is always judged by the rule of reason. E) Tying agreements are always illegal per se. Answer: C Diff: 2 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Legal Concepts 58) What is the legal significance of the distinction between rule of reason violations and per se violations under the Sherman Act? A) Rule of reason violations must be proven beyond a reasonable doubt, and per se violations must be proven with a preponderance of the evidence. B) Rule of reason violations require an agreement with at least one other party, but per se violations can occur without an agreement with others. C) Rule of reason violations relate to horizontal situations, and per se violations relate to vertical situations. D) Rule of reason violations relate to actions brought by private parties, and per se violations relate to actions brought by the government. E) Rule of reason violations might be proven to be acceptable, but per se violations cannot be acceptable under any circumstances. Answer: E Diff: 3 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Legal Concepts 59) Horizontal pricefixing occurs when: A) one or more companies charge the same prices for goods at all their stores for an unreasonable length of time B) a manufacturer requires its independent dealers to sell its products at a given price C) a company with the entire market on a patented product sells the product at a fixed price D) two or more competing companies agree on the prices to charge for their products E) prices are determined with reference to an index, such as the average price of crude oil, which neither the seller nor the purchaser can control Answer: D Diff: 3 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Legal Concepts 9 2010 Pearson Education, Inc. publishing as Prentice Hall 60) Which of the following best describes horizontal division of markets? A) An agreement by competitors to serve only a designated portion of the market for their products. B) Any action in which a company

distributes some products in one geographic area and other products in another geographic area. C) Any action in which a company charges different prices for a product depending on the geographic market. D) An agreement under which two companies agree to jointly market related products, such as sport utility vehicles and outdoor sports equipment. E) The granting of exclusive geographic territory to salespersons. Answer: A Diff: 3 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Legal Concepts 61) A horizontal division of markets can be a per se violation of the Sherman Act if it is based on: A) geography B) customers C) products D) geography and customers E) A, B, and C Answer: E Diff: 2 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Legal Concepts 62) Which kind(s) of boycott(s) violate the antitrust laws? A) an agreement among competitors to boycott a particular supplier B) an agreement among competitors to not sell to a particular customer C) an agreement among competitors to boycott a particular supplier and an agreement among competitors to not sell to a particular customer D) any refusal to sell to a particular customer or purchase from a particular supplier E) any refusal to sell to a particular customer Answer: C Diff: 2 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Legal Concepts 10 2010 Pearson Education, Inc. publishing as Prentice Hall 63) Following the U.S. Supreme Court decision in State Oil Company v. Khan, the following actions by a distributor imposed on the retail sellers of its products will be evaluated under the rule of reason: A) price ceilings B) price floors C) both price ceilings and price floors D) neither price ceilings nor price floors Answer: A Diff: 2 Topic: Vertical Restraints of Trade Skill: Legal Concepts 64) Resale price maintenance occurs when: A) a retailer refuses to lower its price even though competitors have lowered their prices B) a wholesaler refuses to offer volume discounts to its high-volume customers C) a manufacturer sells its products only to those dealers who agree to charge a certain price D) a manufacturer sells its products to its dealers for the same price in all states even though the retail market is much more competitive in some states than in others E) competitors agree to sell their products for the same price Answer: C Diff: 3 Topic: Vertical Restraints of Trade Skill: Legal Concepts 65) Which of the following can be a rule of reason antitrust violation? A) horizontal price-fixing B) horizontal market divisions C) vertical price-fixing D) group boycotts E) C and D Answer: E Diff: 2 Topic: Vertical Restraints of Trade Skill: Legal Concepts 11 2010 Pearson Education, Inc. publishing as Prentice Hall 66) Which of the following best describes the activities allowable under the Noerr doctrine? A) Competitors can work together to lobby for passage of laws without being in violation of the antitrust laws. B) Competitors can agree on the prices at which they will sell their products when the agreement results in lower prices for consumers. C) Mergers will be allowed under the antitrust laws when one of the companies would have failed in the absence of a merger. D) Monopoly power is not a violation when it was acquired through superior business skill. E) A company is free to compete or not compete with any other business, so long as the decision is made unilaterally. Answer: A Diff: 2 Topic: Defenses to Section 1 of the Sherman Act Skill: Legal Concepts 67) To be guilty of monopolization, the defendant must: A) possess monopoly power B) have obtained the monopoly power by some improper act or be abusing the monopoly power C) must be part of a conspiracy, combination, or contract D) A, B, and C E) A and B only Answer: E Diff: 1 Topic: Section 2 of the Sherman Act - Monopolization Skill: Legal Concepts 68) Which of the following is true about the Sherman Act? A) Liability under Section 1 for restraint of trade requires agreement with another party, but liability under Section 2 for monopolization does not. B) Liability under Section 2 for monopolization requires agreement with another party, but liability under Section 1 for restraint of trade does not. C) Liability under either Section 1 or Section 2 requires agreement with another party. D) A business can be liable under either Section 1 or Section 2 without any agreement with another party. Answer: A Diff: 2 Topic: Section 2 of the Sherman Act - Monopolization Skill: Legal Concepts 12 2010 Pearson Education, Inc. publishing as Prentice Hall 69) Under Section 2 of the Clayton Act, rather than making a presumption about whether monopoly power exists, the courts will examine all the facts and circumstances to determine whether monopoly power exists when the defendant holds between ________ percent and ________ percent of the relevant market. A) 30; 80 B) 20; 70 C) 0; 50

D) 33; 70 E) 50; 70 Answer: B Diff: 2 Topic: Section 2 of the Sherman Act - Monopolization Skill: Legal Concepts 70) In determining the lawfulness of a merger, which of the following factors need not be shown? A) an actual lessening of competition B) the relevant product market C) the relevant geographic market D) the likelihood of a substantially lessening of competition or the tendency to create a monopoly Answer: A Diff: 2 Topic: Section 7 of the Clayton Act - Mergers Skill: Legal Concepts 71) Which of the following actions could be acceptable if the purpose is to prevent a company from going bankrupt? A) price-fixing B) resale price maintenance C) price-fixing and setting a price floor D) merger with another firm E) merger with another firm and resale price maintenance Answer: D Diff: 3 Topic: Section 7 of the Clayton Act - Mergers Skill: Legal Concepts 72) If a paper manufacturer merged with a printing company, it would be a: A) horizontal merger B) vertical merger C) market extension merger D) product extension merger E) conglomerate merger Answer: B Diff: 1 Topic: Section 7 of the Clayton Act - Mergers Skill: Legal Concepts 13 2010 Pearson Education, Inc. publishing as Prentice Hall 73) Which of the following theories is not used to examine the legality of conglomerate mergers? A) the market closure theory B) the unfair advantage theory C) the potential competition theory D) the potential reciprocity theory E) A and D are not used Answer: A Diff: 2 Topic: Section 7 of the Clayton Act - Mergers Skill: Legal Concepts 74) The Hart-Scott-Rodino Antitrust Improvement Act led to rules requiring: A) that certain activities are classified as per se violations B) that failing companies be rescued through mergers whenever possible C) that violators of antitrust laws be liable for treble damages D) that mergers be allowed if United States competitiveness in world markets is improved E) that the Federal Trade Commission and the Justice Department be notified in advance of any merger involving certain firms Answer: E Diff: 2 Topic: Section 7 of the Clayton Act Mergers Skill: Legal Concepts 75) The following are required to be proven in order to use the failing company doctrine except for which of the following? A) There is no other reasonable alternative for the failing company. B) No other purchaser is available. C) The failure of the failing company is not due to negligence of its management. D) The assets of the failing company would disappear from the market without the merger. Answer: C Diff: 3 Topic: Section 7 of the Clayton Act - Mergers Skill: Legal Concepts 76) Which of the following best describes a tying arrangement? A) Two companies jointly market their products or services. B) A seller requires the purchase of one product or service in order to be able to purchase a second product or service. C) A seller sets her price according to a market index. D) A seller offers a volume discount for purchases of large quantities. E) A seller refuses to deliver merchandise until payment has been received. Answer: B Diff: 2 Topic: Section 3 of the Clayton Act Tying Arrangements Skill: Legal Concepts 14 2010 Pearson Education, Inc. publishing as Prentice Hall 77) Which of the following is true about tying arrangements? A) Tying arrangements are always illegal. B) Tying arrangements are always legal. C) Tying arrangements are legal for companies without monopoly power and illegal for companies with monopoly power. D) Tying arrangements are illegal unless there is a justifiable reason for the seller to have the tying arrangement. E) Tying arrangements are legal so long as the purchaser is not harmed. Answer: D Diff: 2 Topic: Section 3 of the Clayton Act - Tying Arrangements Skill: Legal Concepts 78) Which of the following is not a defense to a price discrimination charge? A) cost justification B) failing company C) changing D) conditions meeting the competition E) A and C only Answer: B Diff: 2 Topic: Section 2 of the Clayton Act - Price Discrimination Skill: Legal Concepts 79) Which of the following is not a basis for an unfair competition claim under Section 5 of the Fair Trade Commission Act? A) The action violates a provision of the Sherman Act. B) The action violates the "spirit" of the antitrust laws. C) The action allows the party to earn excessive profits. D) The action violates public policy. E) The action is oppressive or unscrupulous. Answer: C Diff: 2 Topic: Section 5 of the Federal Trade Commission Act Unfair Methods of Competition Skill: Legal Concepts 80) Which of the following organizations is exempt from the antitrust laws? A) labor unions B) railroads C) businesses that are substantially regulated by the states D) A, B, and C E) A and B only Answer: D Diff: 2 Topic: Exemptions from Antitrust Laws Skill: Legal Concepts 15 2010 Pearson Education, Inc. publishing as Prentice Hall 81)

Antitrust laws apply to which of the following? A) labor unions B) professional football C) professional baseball D) agricultural cooperatives E) All of these are correct. Answer: C Diff: 2 Topic: Exemptions from Antitrust Laws Skill: Legal Concepts 82) Orange Mist Corporation has been charged by the government with violating the antitrust laws. Orange Mist wants to dispose of this matter without a trial, but it is worried about possible private actions in the future. If Orange Mist wants to minimize its possible future exposure, which of the following is the best way for it to plead? A) Guilty, because this is not an admission of wrongdoing or liability. B) Guilty, because this plea cannot be used in subsequent private action. C) Nolo contendere, because this plea cannot be used against Orange Mist in a subsequent private action. D) Per se, because this plea cannot be used in a subsequent private action. E) It does not matter because the plea here cannot be used in a subsequent private action in any case. Answer: C Diff: 3 Topic: Antitrust Penalties Skill: Factual Application 83) Two supermarkets agree to charge $3.50 for a gallon of milk, which is a fair price in the locality. This action is: A) horizontal price-fixing B) a horizontal market division C) vertical price-fixing D) a group boycott E) legal, because the price agreed upon was fair Answer: A Diff: 1 Topic: Section 1 of the Sherman Act Restraints of Trade Skill: Factual Application 16 2010 Pearson Education, Inc. publishing as Prentice Hall 84) Both Lemon Light, Inc. and Orange Mist Corporation are soft drink distributors in Capital City. The soft drink business is highly competitive, profit margins are razor thin, and both companies are on the brink of bankruptcy. To save themselves, they agree to not sell soft drinks at a price below $3 per six-pack. This is a fair price; it allows both of them to make a fair profit; and the customers still get a relatively inexpensive drink. This action by Lemon Light and Orange Mist is: A) Legal, because they set a fair price. B) Legal, because they were on the brink of bankruptcy. C) Legal, because they did not set an absolute price, but only set a minimum price. D) Illegal, because it is horizontal price fixing. E) Illegal, because it is vertical price fixing. Answer: D Diff: 2 Topic: Section 1 of the Sherman Act Restraints of Trade Skill: Factual Application 85) Sam and Amanda are both beer distributors in Center City. They agree not to sell beer to Skipper's Pizza Parlor because they find dealing with Skipper to be difficult. This action is: A) a horizontal market division B) a vertical market division C) a group boycott D) both A and C E) legal, because the same action could have been reached unilaterally Answer: C Diff: 2 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Factual Application 86) Bargain Basement, Inc. is a discount house. It buys brand name products from various manufacturers and sells them at below the suggested retail price. This practice has angered some of those manufacturers who believe that their products are high quality and should not be sold at bargain basement prices. Several of those manufacturers agree that they will no longer sell their products to Bargain Basement. This action is: A) legal, because it was unilateral B) legal, because it was reasonable under the rule of reason C) an illegal group boycott D) an illegal horizontal market division E) an illegal vertical market division Answer: C Diff: 2 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Factual Application 17 2010 Pearson Education, Inc. publishing as Prentice Hall 87) A manufacturer distributes his products to retailers. However, the manufacturer requires that the retailers charge their customers a price set by the manufacturer. Anyone who does not charge these prices is terminated as a distributor. This action is: A) horizontal price-fixing B) a horizontal market division C) vertical price-fixing D) legal, because it is judged by the rule of reason Answer: C Diff: 2 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Factual Application 88) Arlee owns a fastfood franchise. He purchases his supplies from various distributors around the area. Arlee's soft drink distributor decides not to deal with Arlee anymore, because Arlee is too demanding and always pays his bills late. Several other distributors individually reach the same decision. This action is: A) legal, because it was unilateral B) legal, because it was reasonable under the rule of reason C) an illegal group boycott D) an illegal horizontal market division E) an illegal vertical market division Answer: A Diff: 2 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Factual Application 89) A clothing maker requires the retailers it deals with to sell all the clothing at a fixed price. In examining a retailer's challenge to this practice, a court would: A) examine this arrangement on a rule of reason

basis B) invalidate the arrangement in its entirety C) certainly allow the retailer to sell the clothes for less than the stated price, but examine whether or not the retailer could sell at higher than the stated price using a rule of reason analysis D) allow the arrangement only if neither party possessed monopoly power Answer: C Diff: 3 Topic: Section 1 of the Sherman Act - Restraints of Trade Skill: Factual Application 18 2010 Pearson Education, Inc. publishing as Prentice Hall 90) Which of the following actions taken by a company with monopoly power would not give rise to a cause of action for monopolization or attempt to monopolize? A) getting a patent on a new invention B) creating excess capacity for the production of a certain product C) charging a price that is below its cost to drive a competitor out of business D) buying the entire market of a raw material to prevent competitors from acquiring any Answer: A Diff: 3 Topic: Section 2 of the Sherman Act - Monopolization Skill: Factual Application 91) Texas Western is an international oil company engaged in the exploration for oil, the refinement of oil, and the distribution of oil products. Hollywood, Inc. is a national producer of films. Texas wants to merge with Hollywood. This would be what type of merger? A) horizontal B) vertical C) market extension D) conglomerate Answer: D Diff: 2 Topic: Section 7 of the Clayton Act - Mergers Skill: Factual Application 92) A large electronics manufacturer has focused on the computer and office machines markets. Recently, it introduced a video cassette recorder. The manufacturer has frequently considered entering the home entertainment markets, but recently proposed merging with a television and stereo equipment manufacturer rather than entering the market by itself. This merger could be challenged on the basis of: A) the potential competition theory B) the improper line of business combination theory C) the market extension theory D) the forward vertical merger theory E) the fraud on the market theory Answer: A Diff: 2 Topic: Section 7 of the Clayton Act - Mergers Skill: Factual Application 19 2010 Pearson Education, Inc. publishing as Prentice Hall 93) Real Value, Inc. is a national distributor of food items. It manufactures and distributes virtually every type of food product, but it does not have a breakfast cereal line. Mixing Mills is the nation's leading manufacturer and distributor of breakfast cereals, which is all that it produces. Real Value wants to merge with Mixing Mills. This would be what type of merger? A) horizontal B) vertical C) market extension D) conglomerate Answer: C Diff: 2 Topic: Section 7 of the Clayton Act - Mergers Skill: Factual Application 94) The Dream Drive Corporation is a major manufacturer of automobiles in the United States. The Jupiter Company is a small manufacturer of automobiles in the United States. Dream Drive is willing to purchase and merge with Jupiter. No one else is willing to do so. Without some merger, Jupiter is doomed to extinction. Although this merger might usually be prohibited as anticompetitive, which of the following defenses would probably apply? A) the small company doctrine B) the toehold doctrine C) the failing company doctrine D) the handhold doctrine E) the unfair advantage theory Answer: C Diff: 2 Topic: Section 7 of the Clayton Act - Mergers Skill: Factual Application 95) A manufacturer makes two products, Axobos and Belandos. Axobos are in very high demand, but Belandos are not. The manufacturer requires everyone who wants to buy any Axobos to also buy some Belandos. This action is: A) horizontal price-fixing B) a horizontal market division C) vertical pricefixing D) a vertical market division E) a tying arrangement Answer: E Diff: 2 Topic: Section 3 of the Clayton Act - Tying Arrangements Skill: Factual Application 20 2010 Pearson Education, Inc. publishing as Prentice Hall 96) Texbeer Company manufactures and distributes beer only in Texas. National Breweries manufactures and distributes beer nationally, including in Texas. National lowers its prices in Texas, but nowhere else, selling its beer at below costs, to drive Texbeer out of business. Texbeer sues for price discrimination. In this situation, which of the following is true? A) This is illegal primary line price discrimination. B) This is illegal secondary line price discrimination. C) This is illegal tertiary line price discrimination. D) This is legal because of the changing conditions. E) This is legal because of meeting the competition. Answer: A Diff: 3 Topic: Section 2 of the Clayton Act - Price Discrimination Skill: Factual Application 97) Tarco is a manufacturer and national distributor of spark plugs. It charges $8 per set for its plugs. Reemco manufactures and distributes spark plugs on the East Coast. In order to get customers away from Tarco, Reemco sells its plugs in New York City for $7 per

set. Tarco learns of this and drops its prices to $7 per set only in New York. A Los Angeles customer of Tarco learns of this and sues Tarco for price discrimination. What is the most likely outcome? A) This is legal because of cost justification. B) This is legal because of changing conditions. C) This is legal because of meeting the competition. D) This is illegal price discrimination. Answer: C Diff: 2 Topic: Section 2 of the Clayton Act - Price Discrimination Skill: Factual Application 21 2010 Pearson Education, Inc. publishing as Prentice Hall 98) Marvin Airlines is an established airline that is suddenly experiencing competition from a new airline, Cheapflites, in some of its markets. Cheapflites is a no frills airline that has a marketing policy claiming that all of its tickets are fully refundable. Marvin Airlines has rescheduled many of its flights to leave 15 minutes later than the Cheapflites flight for the same route. Prior to the departure of each Cheapflites flight, a Marvin employee goes to the Cheapflites waiting area with a megaphone and announces that they will allow Cheapflites passengers to fly on Marvin for $10 less than the cost of their Cheapflites ticket and get full service as a bonus. Because the Cheapflites tickets are fully refundable, most Cheapflites passengers accept the offer. Under the antitrust and unfair competition laws, which of the following is most likely true? A) Marvin will not be in violation of any laws unless it has monopoly power. B) Marvin will not be in violation of any laws unless it has agreed with at least one other airline to engage in this activity. C) This is an illegal tying arrangement because Marvin makes its offer only to those people who also have a Cheapflites ticket. D) Marvin is likely in violation of Section 5 of the Federal Trade Commission Act even if it is not in violation of the specific provisions of the antitrust laws. E) Marvin will not be in violation of any laws because seats on a no frills airline would not be considered a substitute for seats on a full-service airline. Answer: D Diff: 2 Topic: Section 5 of the Federal Trade Commission Act - Unfair Methods of Competition Skill: Factual Application 99) Three of the largest automobile dealers agreed among themselves as to what price they would pay to manufacturers for windshields to put in new vehicles. Would this constitute illegal price-fixing? If so, what kind? A) No. This is not illegal price fixing. B) Yes. This is buyers' illegal per se price fixing. C) Yes. This is sellers' illegal per se price fixing. D) Yes. This is both buyers' and sellers' illegal per se price fixing. Answer: B Diff: 2 Skill: Factual Application 100) A publishing company acquires a paper mill. This is an example of a: A) Backward Horizontal Merger B) Backward Vertical Merger C) Forward Horizontal Merger D) Forward Vertical Merger Answer: B Diff: 2 Skill: Factual Application 22 2010 Pearson Education, Inc. publishing as Prentice Hall 101) The force with which the antitrust laws are enforced differs greatly depending on who is President at the time. Is it proper that these laws should be enforced much more rigorously under some presidential administrations than under others? How could a more consistent enforcement policy be put in place? Answer: Because prosecutors always use judgment and exercise discretion, it is probably impossible to eliminate discretion in this area. Diff: 2 Skill: Ethics and Policy 102) In many antitrust cases the definition of the relevant market is the most important issue. The determination of the relevant market often determines the outcome of the entire case, yet there is much subjectivity in the determination of the relevant market. Should there be more rigid guidelines for relevant market determination? Why or why not? Answer: It would be impossible to eliminate the subjectivity in this area because of the nature of the marketplace in general. It is often impossible to determine with certainty what competes with what. Diff: 2 Skill: Ethics and Policy 103) Many laws require a determination of actual injury before liability or guilt is determined. Is it fair that under the Clayton Act a merger may be prevented merely because the merger is "likely" to substantially lessen competition or create a monopoly? Whether or not you agree with this requirement, why do you think it was put into place? Answer: Once a merger is allowed, in most circumstances it could not be reversed. Thus, an evaluation of potential injury is probably the best way to avoid injury. Diff: 2 Skill: Ethics and Policy 104) With the increased globalization of business, and the lowering of trade barriers through agreements such as the North American Free Trade Agreement, should the determination of the relevant market be modified? For products or services where there are foreign firms competing in the United States market, are the antitrust laws obsolete? Answer: The general approach is the same, except

that the courts must be sure to consider worldwide competitors in evaluating monopoly power. Foreign competition does not make the antitrust laws obsolete, although the presence of foreign competition might result in a company not having monopoly power where it would have had monopoly power without the foreign competition. Diff: 2 Skill: Ethics and Policy 23 2010 Pearson Education, Inc. publishing as Prentice Hall 105) A car manufacturer sells several lines of cars with separate dealers for each line of cars. In some smaller markets, a single dealer may carry more than one line of the manufacturer's cars. Because of customer dissatisfaction over the traditional haggling and negotiating over new car prices, the manufacturer decides to change one of its car lines to fixed price/no negotiation selling. All dealers are required to adopt this policy. The suggested retail sticker price is lowered to become the actual selling price of the car rather than the traditional starting point for price negotiations. Discuss any antitrust implications of this policy. Answer: Assuming that the dealers are independently owned, this could be viewed as a resale price maintenance arrangement. Questions include whether the fixed prices are mandatory, and what the consequences would be for cutting prices. Diff: 3 Topic: Vertical Restraints of Trade Skill: Factual Application 106) Assume that in Colorado the ski resorts can be classified as "large" and "small" and that there are 12 large and 15 small resorts. Some owners own more than one resort. Assume that there are two owners, each of whom owns two large resorts, who plan to merge. Currently, each owner's two resorts have approximately 15 percent to 20 percent of the Colorado ski market. Each owner's two resorts have about 30 percent to 35 percent of the Colorado Front Range day skier (those from the Colorado Springs, Denver, and Fort Collins areas who drive to a resort, ski, and drive home all in one day) market. Assume that Colorado resorts combined have about 40 percent of the Rocky Mountain ski market and about 15 percent of the national ski market. Discuss what is the relevant market and the factors that would be considered in determining whether the merger should be allowed. Answer: The crucial factor in the analysis is the relevant geographic market that could be defined as narrowly as the day skier market from the front range area of Colorado, to as broad as the United States (or even North American) ski market. The line of commerce test would probably be downhill skiing and snowboarding, but could possibly be more broadly defined as winter recreation, or something else. The presumptive illegality tests from Philadelphia National Bank would be applied, and the court would determine the effect of the merger on competition. Diff: 3 Topic: Section 7 of the Clayton Act - Mergers Skill: Factual Application 24 2010 Pearson Education, Inc. publishing as Prentice Hall 107) Rocketski has been in business for several years, and had acquired approximately a 5 percent share of the downhill ski market. During the seventh and eighth years in business, because of a design innovation, its sales increased to the point that it could not meet demand. At about the same time, Rocketski introduced a line of ski bindings that has not been very successful. Rocketski then made a slight modification to its ski so that its own bindings are the only ones that can be used without having to use a special adapter plate. Rocketski then began selling all of its skis as ski/binding packages. Some of the dealers objected, but went ahead and purchased from Rocketski because of the popularity of the product and because the package was reasonably priced. Most retailers are able to sell most of the packages to customers, but some customers who want Rocketskis want different bindings. Discuss the antitrust implications of these actions. Answer: This is likely an illegal tying arrangement even though the price charged is reasonable. Diff: 2 Topic: Section 3 of the Clayton Act - Tying Arrangements Skill: Factual Application 108) A car manufacturer was selling several lines of cars, all of which did not include any radios, or tape or CD players, as standard equipment. Fewer and fewer customers were purchasing cars with the optional sound system because the manufacturer's sound systems were overpriced and of inferior quality compared to available aftermarket systems. In fact, some dealers had begun to order all cars with no sound system and install higher quality systems at the dealerships. This manufacturer's cars were popular, so the manufacturer suddenly made a radio tape player standard on its less expensive models and a radio CD player standard on its more expensive models. It raised the prices of the cars by the amount that had previously been charged for the options. At the same time, the manufacturer

changed the shape and installation of the sound systems so that no current aftermarket systems could be installed neatly into the dashboard. Discuss any possible antitrust law violations. Answer: If the cars and sound systems are considered to be separate products, this could be viewed as an illegal tying arrangement. This would probably not be the case if a purchaser could delete the standard sound system and receive a reasonable credit or price reduction. There might also be a monopolization claim under Section 2 of the Sherman Act for the modification to prevent car owners from reasonably installing other brands of sound systems. Diff: 3 Topic: Section 3 of the Clayton Act - Tying Arrangements Skill: Factual Application 25 2010 Pearson Education, Inc. publishing as Prentice Hall 109) Great North Refining distributes its products to wholesalers in 24 states. It usually charges the same prices to all its customers. In Kansas, where there are several competing distributors with overlapping geographical market areas, it has sold some products at lower prices to certain distributors in order to meet prices that a Kansas refiner has offered to these distributors. Whenever one of these distributors offers proof to Great North of a lower price on a similar product from the Kansas refiner, Great North meets the price of the Kansas refiner. Heartland Oil Distributors purchases products regularly from Great North Refining, but has not done business with the Kansas refinery for several years because of a previous dispute. Heartland has tried to get the same lower prices from Great North that the other Kansas distributors have been getting, but Great North has refused to give the lower price unless Heartland can submit a price quote from the Kansas refiner. Discuss Great North's liability for price discrimination. Answer: The lower price to Kansas distributors was probably protected by the meeting the competition defense and was legal. Heartland might have a price discrimination claim. It is reasonable for Great North to demand some proof of a competitor's price, but Heartland cannot provide a price quote. Great North could be liable of monopolization if it is trying to drive Heartland out of business. Diff: 3 Topic: Section 2 of the Clayton Act - Price Discrimination Skill: Factual Application 26 2010 Pearson Education, Inc. publishing as Prentice Hall Find millions of documents here - Study Guides, Homework Solutions, Papers, Exam Answer Keys and more. Course Hero has millions of course related materials that will enable you to learn better, faster and get an A in all your courses. Below is a small sample set of documents: cheeseman_47_tif Rutgers >> ACC >> Bus Law (Fall, 2009) ... cheeseman_48_tif Rutgers >> ACC >> Bus Law (Fall, 2009) ... cheeseman_49_tif Rutgers >> ACC >> Bus Law (Fall, 2009) ... cheeseman_50_tif Rutgers >> ACC >> Bus Law (Fall, 2009) ... cheeseman_51_tif

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