In 1911 the U.S. Supreme Court upheld the breakup of Standard Oil into a number of independent companies.
Correct Answer
True
True. Standard Oil controlled most U.S. oil refining, and the Supreme Court upheld the government's case under the Sherman Act, splitting it into 34 separate firms.
Category: Mergers and Antitrust Law
Question 2
A conglomerate merger combines firms that operate in unrelated lines of business.
Correct Answer
True
True. A conglomerate merger joins companies whose products have little to do with each other, unlike a vertical merger along one supply chain or a merger of direct competitors.
Category: Mergers and Antitrust Law
Question 3
A firm that gains a near-monopoly by offering a better product at a lower price is breaking U.S. antitrust law.
Correct Answer
False
False. Monopoly itself is not illegal in the United States. Antitrust law targets practices that reduce competition, such as price fixing or anticompetitive mergers, not success earned by serving customers better.
Category: Mergers and Antitrust Law
Question 4
Antitrust regulators can approve a merger on the condition that the combined firm sells off some of its brands or divisions.
Correct Answer
True
True. Regulators can allow a merger, block it, or allow it with conditions, and a common condition is selling certain parts of the business to other firms so competition is preserved.
Category: Mergers and Antitrust Law
Question 5
The four-firm concentration ratio gives more weight to the largest firm's market share than to the fourth-largest firm's share.
Correct Answer
False
False. The four-firm concentration ratio simply adds the shares of the four largest firms, so each counts equally. The Herfindahl-Hirschman Index is the measure that weights large firms more heavily, because it squares each share.
Category: Measuring Concentration
Question 6
A market with 100 firms that each hold 1 percent of sales has a Herfindahl-Hirschman Index of 100.
Correct Answer
True
True. Each firm's share squared is 1, and adding 1 for each of the 100 firms gives an index of 100, which signals a highly competitive market.
Category: Measuring Concentration
Question 7
Exclusive dealing can be legal, for example when an automaker sells its new cars only through its own franchised dealers.
Correct Answer
True
True. Exclusive dealing is judged case by case. It is allowed when it supports competition among brands, and it becomes a problem when it shuts rival sellers out of the market.
Category: Anticompetitive Practices
Question 8
U.S. antitrust law allows competing firms to divide a market among themselves by assigning each firm its own customers or territories.
Correct Answer
False
False. Antitrust law forbids competitors from dividing markets by allocating customers, suppliers or territories, just as it forbids fixing prices, fixing output or rigging bids.
Category: Anticompetitive Practices
Question 9
Predatory pricing is hard to prove because an established firm that cuts its price to match a new rival may simply be competing normally.
Correct Answer
True
True. Lower prices are what competition is supposed to produce, so regulators must separate a temporary price cut meant to drive out a rival from an ordinary competitive response.
Category: Anticompetitive Practices
Question 10
Splitting a natural monopoly into two smaller firms lowers average cost, because each firm operates on a smaller scale.
Correct Answer
False
False. In a natural monopoly average cost falls as output rises, so two half-size firms each have a higher average cost than one large firm, which reduces productive efficiency.
Category: Natural Monopoly Regulation
Question 11
Cost-plus regulation gives a regulated utility a strong incentive to cut its costs.
Correct Answer
False
False. Because cost-plus regulation sets price from the firm's own costs plus a normal profit, the firm can pass higher costs on to customers, so it has little reason to cut them and may even let them grow.
Category: Natural Monopoly Regulation
Question 12
In the two decades after airline deregulation in 1978, average airfares fell substantially.
Correct Answer
True
True. Fares fell by about one-third over the following two decades as airlines competed on routes and prices, while planes flew fuller and passenger numbers rose.
Category: Deregulation
Question 13
While the Civil Aeronautics Board regulated airlines from 1938 to 1978, many new airlines entered the major routes.
Correct Answer
False
False. The board controlled entry and assigned routes, and no new airline entered the main routes during those 40 years.
Category: Deregulation
Question 14
U.S. antitrust law forbids competing firms from secretly agreeing in advance on the bids each will submit for a contract.
Correct Answer
True
True. Bid rigging, in which competitors coordinate their bids so that a chosen firm wins at a high price, is illegal, along with price fixing and dividing up markets. Such agreements let competing firms act together like a single monopoly.
Category: Anticompetitive Practices
Question 15
Firms in a cartel set their prices and output independently of one another.
Correct Answer
False
False. A cartel is a group of competitors that coordinate prices and output so that together they act like a single monopoly, which U.S. antitrust law forbids.
Category: Anticompetitive Practices
Question 16
When a natural monopoly must charge a price equal to its average cost, consumers get more output at a lower price than an unregulated monopoly would provide.
Correct Answer
True
True. The unregulated firm restricts output to where marginal revenue equals marginal cost and charges a high price. Setting price where demand meets average cost moves farther down the demand curve, giving a larger quantity at a lower price.
Category: Natural Monopoly Regulation
Question 17
Most proposed mergers in the United States are blocked by antitrust regulators.
Correct Answer
False
False. The government approves most proposed mergers, because most are not expected to reduce competition, and it saves its challenges for deals likely to reduce competition substantially.
Category: Mergers and Antitrust Law
Question 18
A higher Herfindahl-Hirschman Index means a market is less concentrated.
Correct Answer
False
False. A higher index means more concentration. The index rises toward 10,000 as sales become concentrated in fewer or larger firms and falls toward zero as sales spread among many small firms.
Category: Measuring Concentration
Question 19
Airlines were the only U.S. industry deregulated during the 1970s and 1980s.
Correct Answer
False
False. Deregulation also covered railroads, trucking, intercity buses, natural gas and the interest rates banks could pay.
Category: Deregulation
Question 20
Antitrust regulators now rely less on concentration ratios alone and more on case-by-case evidence about how firms actually compete than they did several decades ago.
Correct Answer
True
True. Because concentration measures depend on how a market is defined, regulators increasingly study real data on prices, demand and competition between the merging firms to predict what a merger would do to consumers.
Category: Measuring Concentration