Reading ComprehensionDifficulty: Hard

PT3 S3 P3 Q16 Explanation

Antitrust Law

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TopicsInferenceLaw

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Passage

One type of violation of the antitrust laws is the abuse of monopoly power. Monopoly power is the ability of a firm to raise its prices above the competitive level—that is, above the level that would exist naturally if several firms had to compete—without driving away so many customers as to make that power must have been used to exclude competition in the monopolized market or related markets.

The price a firm may charge for its product is constrained by the availability of close substitutes for the product. If a firm attempts to charge a higher price—a supracompetitive price—customers will turn to other firms able to supply substitute products at competitive prices. If a firm provides a large percentage of customers. For this reason courts often use market share as a rough indicator of monopoly power.

Supracompetitive prices are associated with a loss of consumers’ welfare because such prices force some consumers to buy a less attractive mix of products than they would ordinarily buy. Supracompetitive prices, however, do not themselves constitute an abuse of monopoly power. Antitrust laws do not attempt to counter the mere existence of prices in order to increase profits, it would not be in violation of the antitrust laws.

The antitrust prohibitions focus instead on abuses of monopoly power that exclude competition in the monopolized market or involve leverage—the use of power in one market to reduce competition in another. One such forbidden practice is a tying arrangement, in which a monopolist conditions the sale of a product in one market that customer also buys its computer systems, which are competing with other firms’ computer systems.

The focus on the abuse of monopoly power, rather than on monopoly itself, follows from the primary purpose of the antitrust laws: to promote consumers’ welfare through assurance of products available to consumers.

What this question is testing

Inference

Your task

Find what must be true based on what the passage or stimulus states.

Common trap

Answers that are plausible or likely but not actually guaranteed by the text.

Winning move

Keep only the choice the statements fully support — eliminate anything that requires an extra assumption.

Reading along? Open the full official question in LawHub — we show a fragment here and keep the reasoning in our own words.

The question
16.

Which one of the following distinctions between monopoly power and the abuse of monopoly power would the author say underlies the antitrust laws

Answer choices

  1. Not a Distinction: share vs. control18% picked this

    Monopoly power is assessed in terms of market share, whereas abuse of monopoly power is assessed in

    This doesn't line up with any of our available distinctions about abuse: - excluding competition from your/related markets - hurting consumers' welfare - lowering the quality or quantity of products available to consumers At the end of the 2nd paragraph, we're told that for all monopoly power, courts use market share as a rough indicator. It's not even clear how market "control" is different from market share. The passage never distinguishes those from each other.

  2. Not a Distinction1% picked this

    Monopoly power is easy to demonstrate, whereas abuse of monopoly power is

    Not a Distinction: easy/hard to demonstrate This doesn't line up with any of our available distinctions about abuse: - excluding competition from your/related markets - hurting consumers' welfare - lowering the quality or quantity of products available to consumers The passage never discusses the comparative ease or difficulty of demonstrating monopoly power vs. abusive monopoly power. We know that monopoly power is often determined by market share, which seems fairly easy to demonstrate. But we know that abuses of monopoly power are shown by excluding competition such as in tying arrangements (if a tying arrangement exists, that should make an abuse pretty easy to demonstrate too). If the quality/quantity of products available within a market were getting lower, that also seems pretty easy to demonstrate. So it doesn't seem like we can take the things we know about determining monopoly power vs. determining abuse of monopoly power and make our own common sense judgment about whether one is easier to demonstrate than the other.

  3. Not a Distinction13% picked this

    Monopoly power involves only one market, whereas abuse of monopoly power involves at least two

    Not a Distinction: one vs. multiple markets This doesn't line up with any of our available distinctions about abuse: - excluding competition from your/related markets - hurting consumers' welfare - lowering the quality or quantity of products available to consumers It's possible for your company to abuse its monopoly power by excluding competition from your company's market, so it's not fair to say that abuse has to involve at least two or more related markets.

  4. Not a Distinction: ability vs. use9% picked this

    Monopoly power is the ability to charge supracompetitive prices, whereas abuse of monopoly power is the

    This doesn't line up with any of our available distinctions about abuse: - excluding competition from your/related markets - hurting consumers' welfare - lowering the quality or quantity of products available to consumers And the 3rd paragraph clarifies that using monopoly power to charge supracompetitive prices does not by itself constitute an abuse of monopoly power.

  5. Correct59% picked this

    Monopoly power does not necessarily hurt consumer welfare, whereas abuse of

    Why this is right

    This matches the distinction we get in the final paragraph: - excluding competition from your/related markets - hurting consumers' welfare - lowering the quality or quantity of products available to consumers It is echoed at other times as well, that consumer welfare is the litmus test for whether something is an abuse of monopoly power and thus subject to antitrust laws. For example, it's legal and not abusive for Wal-Mart to use its economy of scale to charge prices so low that its competitors cannot survive. Even though that is sort of chasing competitors out of the market, it is doing so in a way that seems to benefit consumers' welfare (they can get products they want for lower prices than they'd have to pay if they bought those products via competitors). The final sentence of the passage provides the best support for this answer. Because the primary purpose of antitrust laws is to promote consumers' welfare, those laws focus on the abuse of monopoly power, rather than on the monopoly power itself. The logic of that sentence implies that there's a distinction between abuses of monopoly power and mere monopoly power itself, when it comes to consumers' welfare.

    Skill tested: Inference · how this choice captures the passage's function is the move to repeat next time.

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