Review Sheet and Sample Questions
You should know the answers to these questions to be prepared for the exam. Also, it would really help you if you can provide an example or two to explain your point. For example, if you are asked to talk about the public good problem, you should be able to give an example of a public good to make your point clear.
I. Introduction to Government Policies Affecting Industry
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What is market power? What is welfare? What is deadweight loss?
What market imperfections give rise to market power?
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Why do we value the perfectly competitive market?
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What are the rationales for government intervention? o What market imperfections are there? o What are the artificial and natural sources of market power? o What market failures are there?
II. Regulation of Markets: The Antitrust Laws
A.
Overview of Antitrust Laws and Enforcement Agencies
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What are the steps in the policy process?
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What is cost-benefit analysis?
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What agencies are involved in the policy application process? What are the possible sources of government failure?
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What is a positive (and a negative) externality?
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What historical events/industries triggered antitrust law?
Why was public policy more lenient during the Great Depression?
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What are the main Acts and sections that deal with antitrust activity?
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Who can bring criminal cases? Who can bring civil cases?
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What types of burden of proof are there? What do they mean?
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What kind of pleas are there and what do they mean? (make sure you know what a nolo plea is)
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What kind of remedies are there and when are they applied? What do they mean?
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What is different between private and civil suits? How and when can the burden of proof be reduced for the private suits?
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What antitrust violations can be brought by either the FTC or the DOJ?
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Why is there jurisdictional overlap?
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What is a rule of reason approach? What is a per se approach?
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What are the steps in cases brought by the DOJ? What are the steps in cases brought by the FTC?
B. Monopolization
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What proof is needed for monopolization?
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Why is market definition so important? Which two types of market need to be defined?
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What criteria are used for defining the relevant market? (Make sure you can explain each of these)

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How is the cross-price elasticity used to define a relevant market? Make sure you can calculate and interpret a cross-price elasticity.
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What evidence is used to show market power?
 Why is “intent to monopolize” such a difficult thing to determine?
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What approaches are there for determining predatory behavior? (make sure you can explain them)
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How does the AVC rule differ from the ATC rule?
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Who does the recovery approach focus on?
Microsoft case:
 What was the government’s evidence regarding whether Microsoft has substantial market power? What were the 2 relevant markets
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In the District Court case, which of Microsoft’s business practices did the government argue showed intent to monopolize the relevant market? Briefly explain how these business practices might result in monopolization.
C. Collusive Restraints of Trade
1. Overt Price Fixing
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Do you have room for defense if you are found of overt price fixing?
 Why is the prisoner’s dilemma game such a useful way to think about incentives to collude?
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How do factors such as cost structures, product differentiation, elasticity of demand, and frequency of sales affect the likely success of collusive agreements?
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If you agree on variables other than price, can you still be found guilty of price fixing? Why or why not? Give an example.
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What is market allocation and why does it amount to price fixing? Make sure you know how to explain the connection between the two.
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What kind of agreements are typically found in bid rigging?
Spirit v Northwest case:
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What was the controversy over market definition in this case? Why was it so important when determining the existence of predatory pricing?
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Describe how the 3 step process of predatory pricing analysis was carried out in this case
LePage’s v. 3M
 What was 3M accused of? Describe 3M’s rebate program and how
(according to LePage’s) this amounted to intent to monopolize the market.
ADM Case:
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Who was accused? What were the companies accused of doing (e.g., what mechanisms did they use to fix prices and operate the cartel).
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Describe the reasons why damages are difficult to calculate (be sure you can articulate at least 3 of the problems that can arise)

Milk Case:
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What characteristics of school milk markets contribute to the likelihood of collusion?
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Explain how the behavior of the defendants differed from that of the control group and how this evidence was used in the case.
2. Other Behavior That May Amount to Price Fixing
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What types of behavior may also violate Section 1? Make sure you know how to explain these behaviors?
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Why is it difficult to prosecute price fixing in these cases?
MIT Case:
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Why is it harder to prosecute non-profit organizations?
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What was the accusation in the Ivy League case? How did the case end?
ATPCO Case:
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Describe what the accusation was in the airline tariff publishing case.
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Why did technology play such an important role in this case?
How did firms use the ATPCO system to communicate?
3. Other important issues in price fixing
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What is the but-for price? What are the problems associated with its calculation?
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What is a leniency program? How does it work?
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What is the Illinois Brick decision?
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Do you agree with it? Why or why not? (be sure to provide a justification for or against it).
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Describe how statistical analyses can help antitrust authorities, defendants and plaintiffs. Here you can use the ADM, MIT and Milk cases to illustrate such analyses.

Sample Questions
Multiple Choice (you should expect 10 of these @ 4 points each)
1.
Say that an industry has become dominated by a large firm. The federal government brings a monopolization case against the large firm, wins the case, and the firm is forced to break up into 5 companies. The new firms are not very efficient, quality falls, and price rises. This set of events would be an example of: a.
Market imperfection. b.
Government failure. c.
Market imperfection and government failure. d.
Neither market imperfection nor government failure.
2.
Cases that illustrate the broad types of collusive restraints of trade that are illegal under
Section 1 of the Sherman Act include cases against: a.
ATT-T-Mobile Merger. b.
Ivy League schools. c.
Microsoft. d.
Both a and b. e.
All of the above (a, b, and c).
3.
An important factor that is often employed to define the relevant market in an antitrust case is: a.
The availability of complement products in foreign markets b.
Cross price elasticity of demand between products: we covered this in class; we even had an in-class work on this c.
Whether the technology of production is no longer viable. d.
Positive externalities
Essay questions (you should expect 4 of these @ 15 points each)
1.
An antitrust expert speaking on Meet the Press with Tim Russert says, “The rule of reason should be the rule of analysis in both Sherman Act Section 1 and Section 2 cases.”
A.
Is this currently the case? In other words, is the rule of reason used in cases under both
Sections 1 and 2? If not, which rule is used for which sections?
B.
Would you agree with the expert’s opinion? Should the rule of reason be applied under both Section 1 and Section 2? (Explain why you agree or disagree.)
2.
Using the evidence of the Ohio vs Trauth and the Airlines Tariff publishing cases, describe why price fixing cases may be hard to prosecute (give two reasons).
3.
You are working for the DOJ. There are only two manufacturers of hand sanitizers in the US,
UP&UP and DOWN&DOWN. When looking at historical prices, you have found that the price of hand sanitizers sold by UP&UP has substantially dropped in the last six months to a level of $0.95 per 8 oz (from $1.5); prices of DOWN&DOWN have been quite stable (at around $1.38). You are concerned about possible predatory behavior by UP&UP, which has an ATC of $1.05 and an AVC of $0.90 a.
Does this behavior show intent to monopolize under the:

i.
Average Variable Cost rule? ii.
Average Total Cost rule? iii.
The concepts of sacrifice and recoupment? b.
What would you conclude with this information? According to the two-step process in monopolization cases, what additional information about the market would make the case against UP&UP stronger?