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1. The Sherman Act was designed to prevent extreme concentrations of economic power.
Answer: True
2. Both per se and rule of reason violations of the Sherman Act are automatically illegal.
Answer: False
3. A vertical merger involves companies at different stages of the production process.
Answer: True
4. The Clayton Act prohibits anti-competitive mergers.
Answer: True
5. Per se violations are subject to both civil and criminal penalties.
Answer: True
6. Gary, Louise, and Brian, who own competing gas stations in town, happen to see each
other at a restaurant one morning and have breakfast together. While talking, they decide to
set their gas prices at the same amount. They have committed an illegal act only if the agreed
price is unfair to consumers.
Answer: False
7. Companies with substantial assets must notify the FTC before consummating a merger.
Answer: True
8. The only defense available to a defendant in a per se violation is that the violation never
Answer: True
9. Reciprocal dealing is a type of vertical cooperative strategy.
Answer: True
10. The Securities Act of 1933 established the Securities and Exchange Commission.

Answer: False
11. The Sarbanes-Oxley Act makes it a crime to retaliate against someone who blows the
whistle on any federal offense.
Answer: True
12. The 1933 Act prohibits fraud only in transactions involving registered securities.
Answer: False
13. The 1934 Act requires companies with a class of stock that is publicly traded to make
regular filings with the SEC.
Answer: True
14. The SEC has enforcement powers, including the power to issue cease and desist orders, to
levy fines, and to confiscate profits from illegal transactions.
Answer: True
15. Typically, exemptions under the 1933 Act are based on either the type of security or the
type of transaction.
Answer: True
1. Horizontal cooperative strategies would include all EXCEPT:
a. market division.
b. price fixing.
c. reciprocal dealing.
d. bid-rigging.
Answer: C
2. The Clayton Act was enacted:
a. because the courts were too strict in their enforcement of the Sherman Act.
b. to clarify the provisions of the Sherman Act.

c. to eliminate price discrimination that reduced competition.
d. All the above.
Answer: B
3. If a company has violated antitrust laws:
a. the Justice Department can initiate only noncriminal charges against the violator.
b. the Federal Trade Commission may file criminal proceedings against the violator.
c. any private person or company that has been harmed by the violator can file a lawsuit to
recover damages.
d. All the above.
Answer: C
4. The most accurate statement about the Robinson-Patman Act is:
a. It has rarely been enforced in recent years.
b. The U.S. government has stepped up its enforcement during the last decade.
c. It has been declared unconstitutional.
d. It was repealed by Congress in 1998.
Answer: A
5. The U.S. Attorney General brought a Sherman Act lawsuit against competitors in the
widget market. The Attorney General alleged that these companies agreed to charge $20 for
widgets. Which of the following defenses may apply?
a. That the $20 price was fair.
b. That the $20 price was lower than the price before the agreement.
c. That the businesses did not agree to charge $20 for widgets.
d. That the competitors would have gone out of business without the agreement.
Answer: C

6. A marketing representative who is tempted to engage in price-fixing due to heavy
competition and similar prices for competitors' products should:
a. emphasize factors of her product that do not involve price.
b. emphasize service, reliability, and other factors of her company.
c. understand the serious criminal and civil penalties of engaging in price-fixing.
d. All the above.
Answer: D
7. Ed was an independent owner of a chain of TV stores. He successfully got customers into
his store by cutting his prices on widely advertised name-brand products in order to sell other
products for which he received a bigger profit. When the manufacturers of three of the namebrand products discovered Ed's actions, they agreed secretly to stop selling him their TVs.
The three manufacturers:
a. are doing nothing illegal, as they did not get Ed to agree to anything.
b. are free to agree not to deal with Ed since the public can go elsewhere and will not be hurt
c. can choose either as a group to deal or not to deal with any retailer they want.
d. are engaged in a rule of reason violation of the antitrust laws if their action harms
Answer: D
8. A vertical allocation of customers or territory:
a. is a per se violation of Section 1 of the Sherman Act.
b. is a rule of reason violation of the Sherman Act.
c. is not a violation of the Sherman Act.
d. is illegal if it adversely affects competition at any stage of the marketing channel.
Answer: B
9. When the per se standard applies, the plaintiff:

a. needs only to prove the existence of the conduct.
b. must prove that the activity was an unreasonable restraint of trade.
c. must show that there was an anti-competitive impact.
d. None of the above.
Answer: A
10. What law prohibits mergers that are anti-competitive?
a. Sherman Act.
b. Clayton Act.
c. Robinson-Patman Act.
d. Radmon Act.
Answer: B
11. Pat's Pen Co. manufacturers and sells an inexpensive ball-point pen. Salley's Stationery
purchases the pens for $.25 each in quantities of 1,000. Salley's discovered that a national
chain, a competitor of Salley's, buys the pen at $.20 for 1,000. If Salley's Stationery sues Pat's
Pen Co. for price discrimination:
a. Pat's Pen Co. will win if it can prove that it has been selling to the national chain
continuously at the cheaper rate.
b. Pat's Pen Co. will win if it can prove that it did not intend to economically harm Salley's
c. Salley's Stationery will win unless Pat's Pen Co. can justify the price differential.
d. Salley's Stationery will win since price discrimination is a per se violation with no real
Answer: C
12. In the case of United States v. Waste Management, Inc., the U.S. Court of Appeals had to
consider whether a merger of two large trash removal services was illegal. The merger
created a company that controlled nearly 50 percent of the Dallas, Texas regional market. The
court ruled that:

a. such merger created a presumption of illegality.
b. the merger was not illegal since it did not substantially lessen competition in the relevant
c. Both of the above are correct.
d. None of the above.
Answer: C
13. The traditional formula for determining damages for a violation of the Robinson-Patman
Act was to:
a. calculate the estimated amount of lost profits.
b. determine the difference between the two prices and multiply the difference by the number
of units purchased.
c. allow a jury to determine the amount of punitive damages without using any particular
d. All the above.
Answer: B
14. Assume that three automobile manufacturers all merged into one car company. Such a
merger would be a:
a. vertical merger.
b. vertical cooperative arrangement merger.
c. horizontal merger.
d. intracompetitive merger.
Answer: C
15. A major motion picture distributor offers to provide a television station with three very
popular, desirable films. However, as part of the agreement, the distributor requires that the
television station also purchase four films that are not very desirable. This type of
arrangement is called a:
a. reciprocal dealing agreement.

b. reverter arrangement.
c. joint custody arrangement.
d. tying arrangement.
Answer: D
16. What is the Justice Department's current position relative to reciprocal dealing
a. The Justice Department actively enforces this illegal activity.
b. The Justice Department is only concerned about these agreements if a large, national
company is involved.
c. The Justice Department only gets involved if such an agreement will foreclose a significant
share of the market and if the participants agreed not to buy from other competitors.
d. None of the above is correct.
Answer: C
Fact Pattern 39-1
Two universities located within 30 miles of each other agree to divide their market so as to
help them both. The two schools draw a line down a map and each university agrees to accept
students only on their side of the line.
17. This agreement violates the:
a. Sherman Act.
b. Clayton Act.
c. Robinson-Patman Act.
d. None of the above.
Answer: A
18. Such an agreement is:
a. a per se violation of antitrust law.
b. subject to the rule of reason test to determine if it violates antitrust law.

c. not governed by antitrust law since educational institutions are exempt from this area of
d. subject to state regulations but not to the Justice Department.
Answer: A
19. Cooperative strategies include all EXCEPT:
a. horizontal agreements.
b. vertical agreements.
c. mergers.
d. spin-offs.
Answer: D
20. A monopoly is illegal:
a. under any circumstances, under Section 2 of the Sherman Act.
b. only if it is gained or maintained by using wrongful tactics.
c. if you have greater than 50 percent of market share.
d. any time there are no interchangeable products.
Answer: B
21. John D. Rockefeller’s oil business was the main reason which legislation was enacted?
a. Sherman Act.
b. Robinson-Patman Act.
c. Clayton Act.
d. NLRA.
Answer: A
22. The 1933 Act exempts all but which of the following from its registration requirements?
a. Short-term notes.
b. Treasury stock.

c. Government securities.
d. Annuity contracts.
Answer: B
23. Under what type of securities offering must the issuer determine if the investor is an
accredited, sophisticated, or unaccredited investor?
a. Regulation A offering.
b. Regulation D offering.
c. Public offering.
d. An interstate offering.
Answer: B
24. A defense to a civil action brought under Section 10(b) and Rule 10b-5 of the 1934 Act
would be:
a. that the statute of frauds was not observed.
b. that the seller of the securities was not in privity of contract with the plaintiffs.
c. that the sellers did not intentionally or recklessly make a false representation.
d. All of the above.
Answer: C
25. The Foreign Corrupt Practices Act makes it a crime:
a. for U.S. companies to sell unregistered stock in other countries.
b. for non U.S. companies to sell unregistered securities in the U.S.
c. to "bribe" foreign governments or officials.
d. to conspire to defraud stock purchasers in other countries.
Answer: C

1. Explain horizontal price-fixing and vertical minimum and maximum price-fixing. Discuss
their status under antitrust laws.
Answer: Horizontal price-fixing is the agreement between competitors on the prices at which
they will buy or sell products or services. Horizontal price-fixing is a per se violation of
Section 1 of the Sherman Act. Vertical price-fixing occurs when a manufacturer sets the
minimum or maximum prices its distributors can charge. Resale price maintenance (RPM) is
vertical minimum price-fixing, and in 1911 the Supreme Court held RPM to be a per se
violation of the Sherman Act. However, in 2007, the Court reversed itself and held that RPM
is a rule of reason violation. Vertical maximum price-fixing is also a rule of reason violation
of the Sherman Act. The defendant is liable only if the price-fixing harms competition.
2. Smalltown has two family-owned hardware stores that have been in business for years.
Major Hardware decides that Smalltown would be a good place to build one of its
superstores. Major opens, advertising unbelievably low prices; in fact, at below cost. Because
Major owns stores nationally, it is able to keep prices extremely low until both of the familyowned stores have to go out of business because they cannot compete. After Major is the only
hardware store in town, it raises its prices enough to make up for its former losses and to
make some additional profit. Discuss this behavior in relation to antitrust law.
Answer: Major has engaged in predatory pricing. It occurs when a company lowers its prices
below cost to drive competitors out of business. Under Section 2 of the Sherman Act, it is
illegal to attempt to monopolize. Typically, the goal of a predatory pricing scheme is either to
win control of a market or to maintain it. To win a predatory pricing case, the plaintiff must
prove three elements: the defendant is selling its products below cost; the defendant intends
that the plaintiff go out of business; and if the plaintiff does go out of business, the defendant
will be able to earn sufficient profits to recoup its prior losses. Such cases are difficult to
3. Explain the overall purposes of the Sherman Antitrust Act, the Clayton Act, and the
Robinson-Patman Act. How do each of these Acts relate to each other?
Answer: The Sherman Antitrust Act was created in 1890, primarily in response to Standard
Oil's monopoly of the oil industry and the increasing influence of major railroad companies.
The Sherman Act was very broadly worded and prohibits all agreements in restraint of trade.
Section 2 of the Sherman Act makes it illegal to monopolize or attempt to monopolize a

In 1914, Congress passed the Clayton Act to clarify and strengthen the intent of the Sherman
Act. The Clayton Act prohibits anticompetitive mergers, tying agreements, and exclusive
dealing agreements.
Congress created the Robinson-Patman Act in 1936 as an amendment to the Clayton Act. The
Robinson-Patman Act makes it illegal to charge different prices to different customers if the
items are the same and the price discrimination lessens competition. Suppliers are allowed to
charge different prices for the same goods if the costs of servicing the buyer are lower (i.e.,
selling a large quantity to one buyer) or if the supplier is simply meeting competition.
4. Discuss when monopoly power is not a violation of Section 2 of the Sherman Act.
Answer: Under Section 2 of the Sherman Act, it is illegal to monopolize or to attempt to
monopolize a market. Monopoly power in itself is not a violation of Section 2 of the Sherman
Act. For a Section 2 violation, the acquisition of monopoly power must have been done in a
wrongful manner. For example, monopoly power is not illegal if it is the result of a patent,
efficient operation, superior business decisions, or a superior product. It is only illegal if it is
obtained in an improper manner. To determine if a defendant has illegally monopolized, three
questions must be answered: (1) What is the market? (2) Does the company control the
market? And (3) How did the company acquire or maintain its control?
5. Violations of antitrust law are either per se violations or rule of reason violations. What are
the differences between these two types of violations? Give examples of each.
Answer: A per se violation is a violation that is automatically illegal. It is irrelevant what the
effect of the given conduct is on competition; the conduct, in and of itself, is illegal.
Defendants are subject to both criminal and civil penalties. The Justice Department has
sought criminal sanctions against per se violators. Examples would include price fixing, bidrigging, or an agreement by competitors to divide their market among themselves.
A rule of reason violation will be illegal only if it results in harm to competition. Such
violations are viewed on a case-by-case basis. Examples of rule of reason situations would
include refusal to deal arrangements and reciprocal dealing agreements.
6. Jackie learned of insider trading information while talking to Mark, a director of a large
corporation. She took advantage of the information to buy stock and make a huge financial
gain. If she is accused of violating securities law, what must the government prove in order to
gain a conviction against Jackie?

Answer: The government must prove that (1) Jackie knew the information was confidential;
(2) that she knew it came from an insider who was violating his fiduciary duty, and (3) that
the insider, Mark, expected some personal gain as a result of giving Jackie the insider

Test Bank For Introduction to Business Law
Jeffrey F. Beatty, Susan S. Samuelson

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