Chapter 77, Problem 1CYU

a)

To determine

Whether the practice (a patent for a superior fax machine which leads to the only person able to sell that type of fax machine and to purchase the fax machine, a purchaser is required to buy a service contract) is legal under antitrust law

Answer to Problem 1CYU

This practice is illegal.

Explanation of Solution

When a patent for a superior fax machine makes the person able to sell that type of fax machine and purchase the fax machine, a purchaser is required to buy a service contract first then, this practice would be illegal because there is a tying arrangement that involves conditions. In this case, the seller imposes a condition on the buyer to purchase the product after the purchase of the service contract which means the buyer is required to purchase another product to buy one product of the seller.

Therefore, it is illegal for businesses.

Economics Concept Introduction

Introduction: The antitrust laws indicate the business practices such as unlawful mergers for which the court decides whether they are legal or illegal according to the facts of the case.

b)

To determine

Whether the practice (If someone invented a new coffee maker type that is effective and easy to use but the purchasing of this product requires buying all coffee-making supplies and accessories of the seller) is legal under antitrust law

Answer to Problem 1CYU

This practice is illegal.

Explanation of Solution

The business practice which involves exclusive dealing would be illegal, and, if someone invented a new coffee maker type that is effective and easy to use but the purchasing of this product requires buying all coffee-making supplies and accessories of the seller then, this practice is based on exclusive dealing.

Therefore, this practice is illegal as the business is bound or restricted to perform any exclusive dealing under the antitrust laws.

Economics Concept Introduction

Introduction: The antitrust laws indicate the business practices such as unlawful mergers for which the court decides whether they are legal or illegal according to the facts of the case.

c)

To determine

Whether the practice (if there are several other car dealerships in town and someone owns a car dealership and plans to buy the dealership across the street and merge the two companies) is legal under antitrust law

Answer to Problem 1CYU

This practice is legal.

Explanation of Solution

If there are several other car dealerships in town and someone owns a car dealership and plans to buy the dealership across the street and merge the two companies then this is a legal practice because the merger will not result in monopolization. In this case, there are many other car dealerships in the town that can prevent the price control or monopoly of a single firm.

Therefore, this is a legal practice.

Economics Concept Introduction

Introduction: The antitrust laws indicate the business practices such as unlawful mergers for which the court decides whether they are legal or illegal according to the facts of the case.