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The Arena Company

1. The Arena Company, which sells engines, has a uniform price of $500, which is charges all its customers. But, after its competitors begin to cut their prices in the California market to $400, Arena reduces its price to $400.

a. Does this tend to violate the Clayton Act?
b. If the Arena Company had cut its price to $300, might this tend to violate the Clayton Act?
c. Suppose Arena Company decides to purchase enough of the stock of competing firms so that it can exercise control over them and see to it that the price-cutting in the California market stops. Is this legal? If not what law does it violate?

2. The demand and supply curves for the Swiss franc are as follows:

Price of franc Franc demanded Franc supplied
(dollars) (millions) (millions)

0.80 600 800
0.70 640 740
0.60 680 680
0.50 720 620
0.40 760 560

a. What is the equilibrium rate of exchange for the dollar?
b. What is the equilibrium rate of exchange for the Swiss franc?
c. How many dollars are bought in the market?
d. How many Swiss franc are bought in the market?

Solution Preview

1. The Arena Company, which sells engines, has a uniform price of $500, which is charges all its customers. But, after its competitors begin to cut their prices in the California market to $400, Arena reduces its price to $400.

a. Does this tend to violate the Clayton Act?

No, this doesnt violate Clayton Act as the firm is merely trying to keep up with the competition and elminate it.

b. If the Arena Company had cut its price ...

$2.19