Question 1

The government believes that which entry barrier has allowed Microsoft to gain monopoly power?

Accepted Answer

Economies of scale and network economies have allowed Microsoft to gain monopoly power. These barriers make it difficult for new or smaller competitors to enter the market and compete with Microsoft. Microsoft's vast network of customers, developers, and partners, as well as their extensive advertising and marketing campaigns, has created a strong network effect that further reinforces Microsoft's dominance in the market.

Question 2

The Federal Trade Commission uses ________ to help determine whether to challenge a possible merger.

Accepted Answer

The Herfindahl-Hirschman Index (HHI) measures market concentration and is often used by the FTC in evaluating the competitive impact of mergers and acquisitions. A higher HHI indicates greater market concentration and potential anticompetitive effects. The other options mentioned are also important antitrust laws, but are not specifically used by the FTC in evaluating mergers.

Question 3

Resale price maintenance can be illegal

Accepted Answer

Resale price maintenance can be illegal under the Sherman Act, which addresses antitrust violations including price fixing and other practices that restrain trade.

Question 4

In order for the Federal Trade Commission to consider an industry concentrated,the industry must have a Herfindahl-Hirschman Index of

Accepted Answer

The Herfindahl-Hirschman Index (HHI) is a measure of market concentration, and the Federal Trade Commission considers markets to be concentrated if the HHI is greater than 1,800.

Question 5

Resale price maintenance is efficient if

Accepted Answer

Resale price maintenance can be efficient if it enables a manufacturer to induce an efficient standard of service from retailers. This means that by setting a minimum price for the product, the manufacturer can ensure that retailers are providing value-added services such as product presentations, demonstrations, and after-sales service. This can increase customer satisfaction and create a competitive advantage for the manufacturer. However, if the manufacturer engages in predatory pricing, or if retailers charge the highest price for the product, the resale price maintenance would not be efficient. Additionally, the use of tying arrangements or exclusive deals could also reduce competition and harm consumer welfare.

Question 6

A group of firms in Sunnyvale have a complaint about one of their competitors.They charge that Big Box Building Supply charges such low prices that they can't stay in business.Which of the following is the most likely response from an economist?

Accepted Answer

An economist would most likely argue that Big Box Building Supply is not engaged in predatory pricing since the low prices would attract new competitors, and if they entered the market and drove down prices even further, the original firms would simply have to exit. This is how a competitive market should function, and it benefits consumers by providing lower prices and better products.

Question 7

If the Herfindahl-Hirschman Index (HHI)for a market is between 1,000 and 1,800,the Federal Trade Commission will examine

Accepted Answer

The Federal Trade Commission will examine mergers that raise the HHI by 100 or more points if the HHI for a market is between 1,000 and 1,800. This is because such mergers may result in a significant increase in market concentration, which can lead to reduced competition, higher prices, and reduced innovation. Therefore, the FTC wants to ensure that such mergers do not harm consumers and competition.

Question 8

If an industry has a Herfindahl-Hirschman index of 800,it is considered a

Accepted Answer

The answer of If an industry has a Herfindahl-Hirschman index...

Question 9

Which of the following is always illegal?

Accepted Answer

Price fixing is always illegal, as it involves two or more firms conspiring to set prices, which reduces competition and harms consumers. Possessing a large market share or selling at a lower price due to efficiency is not necessarily illegal, but may raise antitrust concerns if it harms competition. Attempting to merge with a competitor or engaging in price discrimination may or may not be legal, depending on the specific circumstances and whether they violate antitrust laws.

Question 10

If Polka Cola agrees to sell its cola to a retailer only if the retailer also buys a lemon-lime drink,Polka Up,then Polka Cola is engaged in

Accepted Answer

A tying arrangement is when a seller requires a buyer to purchase one product in order to be able to purchase another product. In this case, Polka Cola is requiring the retailer to purchase Polka Up lemon-lime drink in order to be able to purchase Polka Cola.

Question 11

The Shiny Watch company,a manufacturer of expensive watches,requires all of its retailers to sell its watches for a specific price.Which of the following statements are true?
i.The Shiny Watch company is engaged in predatory pricing.
ii.The Shiny Watch company is definitely violating the law
iii.The Shiny Watch company creates an efficient outcome it its retailers provide an efficient level of service.

Accepted Answer

The practice described by the Shiny Watch company is not predatory pricing, which involves setting prices low to eliminate competition, nor is it definitively illegal, as manufacturers can suggest retail prices under certain conditions. However, if the policy ensures that retailers provide an efficient level of service, it can lead to an efficient outcome by maintaining brand value and customer satisfaction.

Question 12

Suppose that an industry has an HHI of 1,900.Two firms in the industry want to merge.Under which conditions will the Federal Trade Commission challenge the merger?

Accepted Answer

The answer of Suppose that an industry has an HHI...

Question 13

The U.S.courts found Microsoft

Accepted Answer

The U.S. courts found Microsoft guilty of violating the Sherman Act by engaging in practices that maintained its monopoly in the PC operating system market, which was deemed anti-competitive.

Question 14

The first antitrust act was ________ passed in ________.

Accepted Answer

The first antitrust act was the Sherman Act, passed in 1890. Choices A and E are also antitrust acts, but they were passed later, in 1914 and 1914 respectively. Choices C and D are not actual antitrust acts.

Question 15

The Clayton Act

Accepted Answer

The Clayton Act, passed in 1914, along with its amendments, outlawed several specific business practices if they substantially lessened competition or created monopoly. It did not prohibit all business practices that lessen competition, as some practices have a pro-competitive effect. The Sherman Act is a separate anti-trust law that remains in effect today. The Clayton Act has not been repealed and remains a significant tool for enforcing anti-trust laws in the United States.

Question 16

If the Herfindahl-Hirschman Index in an industry is above 1,800,a merger that increases the Herfindahl-Hirschman Index by over 50 points will

Accepted Answer

A Herfindahl-Hirschman Index above 1,800 indicates high market concentration and limited competition. A merger that increases the index by over 50 points will result in further concentration and possibly even a monopoly. This would be viewed as anti-competitive behavior by the government and is likely to be challenged.

Question 17

The Federal Trade Commission ________ the merger between AT&T and T-Mobile because the merger was projected to ________.

Accepted Answer

The Federal Trade Commission (FTC) did not approve the merger between AT&T and T-Mobile because it was projected to significantly increase the Herfindahl-Hirschman Index (HHI) by at least 700 points, indicating a substantial reduction in market competitiveness.

Question 18

Federal Trade Commission guidelines state that it will examine mergers in markets for which the Herfindahl-Hirschman Index is

Accepted Answer

The FTC guidelines state that it will examine mergers in markets where the Herfindahl-Hirschman Index is between 1,000 and 1,800. In this case, the correct answer is (D) because the merger would increase the index by 100 points in this range, which triggers scrutiny from the FTC.

Question 19

Which of the following is (are)prohibited if it substantially lessens competition or creates a monopoly?
i.price discrimination
ii.tying arrangements
iii.exclusive dealing

Accepted Answer

All three practices—price discrimination, tying arrangements, and exclusive dealing—can be prohibited if they substantially lessen competition or create a monopoly. This is in line with antitrust laws aimed at maintaining fair competition in the marketplace.

Question 20

Suppose there are 6 firms in an industry with the following market shares.If the two smallest firms want to merge,how will the Federal Trade Commission reply?
Firm 1:30
Firm 2:25
Firm 3:25
Firm 4:10
Firm 5: 7
Firm 6: 3

Accepted Answer

The answer of Suppose there are 6 firms in an...

Quiz 18: Oligopoly