MGMT 311 Exam 3 - FLASHCARDS - Chapter 27

Question 1

What is a market in which there is a single seller or a firm that, although not the sole seller in the market, can nonetheless substantially ignore rival firms in setting a selling price for its product or can in some way limit rivals from competing in the market?

Answer 1

Monopoly

Question 2

What is the power to control prices or exclude competition in a relevant market?

Answer 2

Monopoly power

Question 3

What is the ability to raise prices above those that would be charged in a competitive market?

Answer 3

Market power

Question 4

What is any agreement between firms that has the effect of reducing competition in the marketplace?

Answer 4

Restraint of trade

Question 5

Is amazon a monopoly?

Answer 5

Yes

Question 6

Are all monopolies illegal?

Answer 6

No

Question 7

What is the purpose of antitrust laws?

Answer 7

Regulate business conduct to promote forms of competition that benefit society

Question 8

Why did the need for antitrust laws arise after the Civil War?

Answer 8

declining competition from actions of business persons legally tying themselves together in business trusts

Question 9

What was an example of a company that had a trust after the Civil War?

Answer 9

John D Rockefeller and the Standard Oil trust. Rockefeller controlled almost all oil refining and distribution in the US and much of the world’s trade by 1882.

Question 10

What was the first provision of the Sherman Antitrust Act?

Answer 10

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal [and is a felony punishable by fine and/or imprisonment].”

Question 11

What was the second provision of the Sherman Antitrust Act?

Answer 11

“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony [and is similarly punishable].”

Question 12

What is the purpose of section 1 of the Sherman Antitrust Act?

Answer 12

Aimed at stopping companies who wield unchecked market power

Question 13

What is the purpose of section 2 of the Sherman Antitrust Act?

Answer 13

Aimed at stopping companies wielding unchecked monopoly power

Question 14

What is the main difference between section 1 and section 2 of the Sherman Act?

Answer 14

S1 = A group of people vs S2 = 1 person or more

Question 15

True or false: section 1 requires 2 or more people since you can’t conspire or contrat with yourself. The illegal activity is joining together to exclude others

Answer 15

TRUE

Question 16

True or false: with section 1, cases are often concerned with finding an agreement that leads to a restraint of trade?

Answer 16

TRUE

Question 17

True or false: section 2 can apply with either 1 or 2 or more people because it refers to every person. So unilateral can violate section 2

Answer 17

TRUE

Question 18

True or false: with section 2, cases deal with the structure of a monopoly that exists in the marketplace, or the so called issue of monopoly power in the marketplace

Answer 18

TRUE

Question 19

What are per se violations?

Answer 19

Violation of the law

Question 20

What is an example of a per se violation?

Answer 20

Price fixing - There are two grocery stores in a small town and there is a rumor that a third grocery store will be opening. The two grocery stores come together to keep prices so low that the new store wouldn’t be able to compete

Question 21

What are rule of reason violations?

Answer 21

Establishes that a business practice is illegal if it unreasonably restricts trade. Under the rule of reason, courts examine both the positive and negative effects of an agreement before determining whether it violates antitrust laws

Question 22

Under what section of the Sherman Act do per se and rule of reason violations fall?

Answer 22

Section 1

Question 23

What factors does the court use in rule of reason?

Answer 23

a. the purpose of the agreement
b. the parties power to implement the agreement to achieve the purpose
c. the effect or potential effect of the agreement on competition
d. whether the parties could have relied on a less restrictive means to achieve their purpose.

Question 24

What are horizontal restraints?

Answer 24

any agreement that in some way restrains competition between rival firms competing in the same market. This is between companies at the same level of operation and in direct competition with each other, such as Target and Walmart

Question 25

What are examples of horizontal restraints?

Answer 25

Price fixing Group boycotts Horizontal market divisions Trade associations Joint ventures

Question 26

What are examples of per se violations?

Answer 26

Price fixing Group boycotts Horizontal market divisions

Question 27

What are examples of rule of reason violations?

Answer 27

Trade associations Joint ventures Territorial or Customer Restrictions Resale Price Maintenance Agreements

Question 28

What is the act of restricting output by eliminating price competition in which companies seek to sell more by charging less than their rivals?

Answer 28

Price fixing

Question 29

Is reasonableness of a per se violation ever considered by the courts?

Answer 29

No

Question 30

What is an agreement by 2 or more sellers to refuse to deal with another person or company?

Answer 30

Group boycotts

Question 31

What is an agreement to divide up the market between rival companies?

Answer 31

Horizontal market divisions

Question 32

Do horizontal market divisions include dividing up the territory or dividing up types of customers?

Answer 32

Yes

Question 33

What are trade associations?

Answer 33

Businesses in the same general industry or profession organizing to pursue common interests like ad campaigns, lobbying congress, etc

Question 34

What is it when 2 or more individuals in business entities join together in a particular commercial enterprise?

Answer 34

Joint ventures

Question 35

What type of violation is price fixing?

Answer 35

Per se

Question 36

What type of violation is group boycotts?

Answer 36

Per se

Question 37

What type of violation is a horizontal market division?

Answer 37

Per se

Question 38

What are trade associations judged by?

Answer 38

Rule of reason

Question 39

What are joint ventures judged by?

Answer 39

Rule of reason

Question 40

What are vertical restraints?

Answer 40

any agreement between firms at different levels in the manufacturing and distribution process. Vertical relationships encompass the entire chain of production – purchases of inputs, basic manufacturing, distribution to wholesalers, and retail sales.

Question 41

What are examples of vertical restraints?

Answer 41

Territorial or Customer Restrictions Resale Price Maintenance Agreements

Question 42

What are Territorial or Customer Restrictions?

Answer 42

manufacturers instituting territorial restrictions or attempting to prohibit wholesalers or retailers from reselling the products to certain classes of buyers, such as competing retailers.

Question 43

What are Resale Price Maintenance Agreements?

Answer 43

an agreement between a manufacturer and a distributor or retailer in which the manufacturer specifies what the retail prices of its products must be. (Maximum resale price maintenance agreements could increase competition and benefit consumers.)

Question 44

What two types of behavior violate section 2 of the Sherman Act?

Answer 44

1. Conduct pursued by a firm that is already a monopolist is condemned as monopolization if the conduct interferes with free trade and is intended to preserve the firm’s monopoly. 2. Conduct intended to capture monopoly power is condemned as an attempt to monopolize.

Question 45

What is an example of conduct intended to capture monopoly power?

Answer 45

Predatory pricing

Question 46

What is predatory pricing?

Answer 46

when one firm attempts to drive its competitors from the market by selling its product at prices substantially below the normal costs of production. This eliminates the competition and then the predator raises the prices well above the normal competitive level to recoup its’ loses and earn higher profits.

Question 47

What does the US Supreme Court define monopolization as?

Answer 47

a. “The possession of monopoly power in the relevant market and b. the willful acquisition or maintenance of the power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”

Question 48

How does price fixing differ from predatory pricing?

Answer 48

Price fixing is a section 1 violation that requires 2 or more people or businesses to be involved in bahavior. Predatory pricing is a section 2 violation and involves only 1 company

Question 49

How does a plaintiff prove a violation of section 2?

Answer 49

They have to prove monopoly power and intent to monopolize

Question 50

How does a plaintiff prove monopoly power?

Answer 50

Plaintiff must show the firm has a dominant share of the relevant market and there are significant barriers for new companies entering that market.

Question 51

Before a court can determine whether a firm has a dominant market share, what must be defined?

Answer 51

A relevant market

Question 52

What market includes all products with identical attributes (products are made by different manufacturers) and are interchangeable: sugar, stevia, stevia cane, equal, sweet-n-low, etc?

Answer 52

Product markets

Question 53

What market includes geographic area in which the company and competitors sell the product/services; nationwide vs. local markets?

Answer 53

Relevant geographic market

Question 54

What must be proven in an attempt to monopolize?

Answer 54

1. Anticompetitive behavior 2. Specific intent to exclude competition and garner monopoly power. 3. “Dangerous” probability of success in achieving monopoly power.

Question 55

True or false: violations of the Chayton Act are criminal, not civil?

Answer 55

False. Violations of the Clayton Act are only civil violations and not criminal

Question 56

What are the four activities made illegal under the Clayton Act?

Answer 56

1. Price Discrimination – when a seller charges different prices to competing buyers for identical goods or services. 2. Exclusionary Practices (exclusive-dealing contracts and tying arrangements) 3. Corporate Mergers 4. Interlocking Directorates

Question 57

What is it when a seller charges different prices to competing buyers for identical goods or services?

Answer 57

Price discrimination

Question 58

What three defenses could be used in price discrimination situations?

Answer 58

1. cost justification 2. meeting a competitor’s prices 3. changing market conditions

Question 59

What are the two types of exclusionary practices?

Answer 59

exclusive-dealing contracts and tying arrangements

Question 60

What is a contract under which a seller forbids a buyer to purchase products from the seller’s competitors?

Answer 60

Exclusive dealing contracts

Question 61

What is it when a seller conditions the sale of a product on the buyer’s agreement to purchase another product produced or distributed by the same seller?

Answer 61

Tying arrangments

Question 62

Who enforces federal antitrust laws?

Answer 62

Department of Justice (DOJ) and the FTC

Question 63

True or false: The DOJ can prosecute violations of the Sherman Act as civil or criminal?

Answer 63

TRUE

Question 64

What do both the FTC and DOJ enforce the Clayton Act as?

Answer 64

Civil cases

Question 65

What do civil penalties include?

Answer 65

divestiture of assets and dissolution of companies

Question 66

True or false: 90 percent of modern antitrust cases are based on private plaintiffs?

Answer 66

TRUE

Question 67

What can private parties injured due to violations of the Sherman/Clayton Acts sue for?

Answer 67

Treble damages, attorney’s fees, in some cases injunctive relief

Question 68

What are the four exemptions for antitrust laws (what type of businesses are exempt)?

Answer 68

Labor unions Insurance companies Exporters Business persons' joint efforts to get governmental action to help a certain industry

Question 69

True or false: the Clayon Act permits labor unions to organize and bargain without violating antitrust laws and specifies that strikes and other labor activities normally do not violate any federal law?

Answer 69

TRUE

Question 70

True or false: the McCarran Ferguson Act exempts the insurance business in states in which the industry is regulated?

Answer 70

TRUE

Question 71

Penguin Airlines coordinates with other airlines to set standard prices for air travel and to coordinate their markets. Has Penguin Airlines and the other airlines violated the Sherman Act? Yes, they have because price fixing is a violation of Section 1 of the Sherman Act. No, they have not because the Federal Aviation Administration (FAA) has primary regulatory authority over airlines. Yes, they have because price fixing is a violation of Section 2 of the Sherman Act. No, they have not because air travel is not a commercial activity and, therefore, does not fall under the Sherman Act.

Answer 71

No, they have not because the Federal Aviation Administration (FAA) has primary regulatory authority over airlines.

Question 72

The Federal Trade Commission (FTC) files suit against Yange Corp. under Section 2 of the Sherman Act. To be successful, the FTC must prove that Yange Corp. possesses monopoly power in the relevant market and that the monopoly power was obtained by illegal means. The FTC has no direct evidence that Yange is using its power to control prices and restrict output. The FTC, therefore, must show that Yange Corp. has monopoly power indirectly, by showing that Yange Corp. has a dominant share of the relevant market and that there are significant barriers for new competitors entering that market. The FTC can calculate the market share that Yange Corp. has by showing the net revenue that Yange Corp. had during the applicable period. taking the company's sales over the applicable period and dividing it by the total sales of the industry over the same period. showing the total sales that Yange Corp. had during the applicable period. taking the total sales of the industry over the applicable period and dividing it by the company’s total sales over the same period.

Answer 72

taking the company's sales over the applicable period and dividing it by the total sales of the industry over the same period.