Law Business and Society 12th Edition By Tony McAdams – Test Bank

Chapter 11 Antitrust Law—Monopolies and Mergers

1) As part of a settlement, Microsoft was broken into two separate companies.

Answer: FALSE
Explanation: A federal district court in 2000 and later a federal court of appeals ruled that Microsoft had violated federal antitrust laws by maintaining its 95 percent share of the Intel-compatible PC operating systems market through anticompetitive means. The district court judge ordered Microsoft split into two companies as a remedy for its antitrust wrongs, but the court of appeals threw out that order. The settlement, though somewhat of a victory for Microsoft, might also be regarded as a victory for common sense in allowing Microsoft to go forward with its remarkable work. The decision places considerable faith in the market, as it probably should in America, but the case also represents a powerful affirmation of the government’s authority to attack monopoly behavior no matter how prominent the wrongdoer.
Difficulty: 1 Easy
Topic: Microsoft a Monopolist?
Learning Objective: 11-02 Explain how Microsoft violated U.S. antitrust laws.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

2) The Sherman Act prohibits actual monopolies rather than attempts to monopolize.

Answer: FALSE
Explanation: The Sherman Act forbids attempts to monopolize as well as monopoly itself. A monopoly is a situation in which one firm holds the power to control prices and/or exclude competition in a particular market.
Difficulty: 1 Easy
Topic: Monopolization Analysis
Learning Objective: 11-03 Analyze when a monopoly has been created.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) A situation in which a firm holds the power to control prices and/or exclude competition in a particular market is called an oligopoly.

Answer: FALSE
Explanation: A monopoly is a situation in which one firm holds the power to control prices and/or exclude competition in a particular market. A few firms sharing monopoly power constitute an oligopoly.
Difficulty: 1 Easy
Topic: Monopolization Analysis
Learning Objective: 11-03 Analyze when a monopoly has been created.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

4) High market concentration rarely promotes competition.

Answer: FALSE
Explanation: High market concentration often promotes competition, whereas a fragmented market of many small firms may produce higher prices. Market share alone is highly unlikely to lead to antitrust action, but a high market share acquired and/or maintained via abusive conduct may be challenged.
Difficulty: 1 Easy
Topic: Monopolization Analysis
Learning Objective: 11-03 Analyze when a monopoly has been created.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

5) Market share alone generally will not lead to antitrust action.

Answer: TRUE
Explanation: Market share alone is highly unlikely to lead to antitrust action, but a high market share acquired and/or maintained via abusive conduct may be challenged. Barriers to entry, economies of scale, the strength of the competition, trends in the market, and pricing patterns all help to determine whether the market remains competitive despite a single firm’s large share.
Difficulty: 1 Easy
Topic: Monopolization Analysis
Learning Objective: 11-03 Analyze when a monopoly has been created.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) An oligopoly is created when a few firms share power.

Answer: TRUE
Explanation: A few firms sharing monopoly power constitute an oligopoly. Oligopolistic markets are common in American life, and they have emerged in some increasingly concentrated global markets as well.
Difficulty: 1 Easy
Topic: Monopolization Analysis
Learning Objective: 11-03 Analyze when a monopoly has been created.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

7) Monopoly power cannot be established by market share alone.

Answer: TRUE
Explanation: Market share alone does not establish monopoly power. Barriers to entry, economies of scale, the strength of the competition, trends in the market, and pricing patterns all help to determine whether the market remains competitive despite a single firm’s large share.
Difficulty: 1 Easy
Topic: Monopolization Analysis
Learning Objective: 11-03 Analyze when a monopoly has been created.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

8) A monopoly may be earned or thrust upon a monopolist.

Answer: TRUE
Explanation: A monopoly may be earned when it is innocently acquired via “superior skill, foresight, or industry.” Sometimes a monopoly may be “thrust upon” a monopolist because the competition failed or because of “natural monopoly” conditions where the market will support only one firm or where large economies of scale exist.
Difficulty: 1 Easy
Topic: Monopolization Analysis
Learning Objective: 11-03 Analyze when a monopoly has been created.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
9) Mergers generally duplicate efforts of the merging companies, and thereby, do not produce significant economies of scale.

Answer: FALSE
Explanation: Mergers often have clearly beneficial effects. Some possible virtues of mergers include replacing inefficient management, permitting stronger competition with previously larger rivals, improving credit access, producing efficiencies including economies of scale, offering a pool of liquid assets for use in expansion and in innovation, offering tax advantages, allowing for less expensive growth.
Difficulty: 1 Easy
Topic: Merger Law: Overview
Learning Objective: 11-04 Identify the potential benefits and hazards of mergers.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation

10) Growth by merger is often more expensive than internal growth.

Answer: FALSE
Explanation: Mergers often have clearly beneficial effects. Mergers often have clearly beneficial effects. Some possible virtues of mergers include replacing inefficient management, permitting stronger competition with previously larger rivals, improving credit access, producing efficiencies including economies of scale, offering a pool of liquid assets for use in expansion and in innovation, offering tax advantages, allowing for less expensive growth.
Difficulty: 1 Easy
Topic: Merger Law: Overview
Learning Objective: 11-04 Identify the potential benefits and hazards of mergers.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation