Managerial Economics and Business Strategy

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Dr. David J. St. Clair Managerial Economics and Business Strategy

3551 #6 Answers – Summer 2012

1. What type of evidence did Dupont introduce in its plastic wrap trial that proved decisive in its acquittal? __ It brought in cross elasticities to show that there were many substitutes for plastic wrap. It then argued that the market had to be defined to include all substitutes. This broadened the definition of the market to the point where DuPont’s market share was small.___

2. What had Alcoa done that made the judge find it guilty of being a monopoly? _ It had a market share above 90%_. Did the judge rule that Alcoa was a “dirty” firm? _ No ___

3. Why did the verdict in the U.S. Steel antitrust case confuse everyone? __ U.S. Steel was ruled to be “reasonable” under the courts “Rule of Reason” doctrine. This was confusing because the company had a notorious reputation for price fixing and uncompetitive practices __

4. Bill Gates took a very aggressive approach to dealing with the Justice Department in the Microsoft case even though Microsoft had an “Alcoa Problem.” What was Microsoft’s “Alcoa Problem?” ___ Microsoft had a large market share approaching the 90% threshold established in the Alcoa case ___

5. When something is illegal “per se,” what does this mean? __ The government only has to prove that you did it; motive or intent does not matter ___

6. What was the remedy in the Standard oil and American Tobacco cases? __ divestiture (i.e., the companies were broken up) ____

7. What, according to Andrew Carnegie, was destructive competition? ___ excessive and ruthless competition among big firms that eliminated profits but not competitors __

8. When we were discussing oligopoly, we referred to the two faces of oligopoly. Which face of oligopoly was Carnegie referring to in his discussion of ‘destructive competition?’ the non-cooperative, extremely competitive rivalry _

9. What does the Hart-Scott-Rodino Act require? ___ pre-merger notification and approval by the Justice Department and the FTC ____

10. What is a tying contract (or agreement)? __ a firm refuses to seel product that you want unless you also buy one of the firm’s other products ___

11. The Sherman Act was short and sweet. It outlawed two things. Identify both: a. ___being a monopoly ______________________
b. ___trying to become a monopoly __________________________

12. Which antitrust act made vertical market foreclosure a violation of antitrust laws? __ the Celler-Kefauver Act __

13. What was the reason why the European Union blocked the merger of GE and Honeywell? __ It violated the EU’s “portfolio power” doctrine __

14. What is a “soft loan?” ___a government loan that is never going to be paid back; a disguised subsidy __. Why have many American economists likened “portfolio power” to a soft loan? ___They argue that portfolio power is a disguised protectionist policy masquerading as an antitrust policy___

15. What was IBM’s defense in its mainframe computer antitrust case? __ It challenged the government’s narrow “large main-frame computer” definition of the relevant market ___

16. What was DuPont convicted of in the GM case (be specific). ______ vertical market foreclosure ____

17. What precedent did the Pabst Brewing case set? __if the market is a local, then the relevant market must be local ____

18. What precedent did the Staples/Office Depot case set? ___the Justice Department or the FTC can disallow a merger based on the anticipated price and competitive consequences ________________

19. What happened to U.S. antitrust policy following the E.C. Knight case? __ as a consequence of the E.C. Knight case, antitrust laws did not apply to manufacturing and there was a wave of mergers in the manufacturing sector __

20. In the 1890s, German courts were taking a very different approach to cartels and...
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