Which of the following best describes the antitrust violation known as market allocation?

• A. Firms agree to reduce output in order to increase market prices.
• B. Competing firms agree to divide markets among themselves, so each firm has exclusive rights to sell in a specific area or to a specific group of customers.
• C. A single firm controls the entire supply of a product, preventing entry by other firms.
• D. Firms set prices at a level that maximizes joint profits, rather than competing on price.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of market allocation in antitrust law. Market allocation occurs when competing firms agree to divide markets among themselves, so each firm has exclusive rights to sell in a specific area or to a specific group of customers.
2. Step 2: Recognize that this practice reduces competition because firms do not compete in each other's designated markets, which can lead to higher prices and reduced choices for consumers.
3. Step 3: Differentiate market allocation from other antitrust violations such as collusive output reduction (where firms agree to reduce output to raise prices), monopoly control (where a single firm controls the entire supply), and price-fixing (where firms set prices to maximize joint profits).
4. Step 4: Analyze the given options and identify that the correct description of market allocation is the one where competing firms agree to divide markets among themselves, granting exclusive selling rights in specific areas or customer groups.
5. Step 5: Conclude that the best description of market allocation is the agreement among firms to split markets, which is distinct from other forms of antitrust violations involving output reduction, monopoly control, or price-fixing.