A few years ago, Teva Pharmaceuticals was accused by the Justice Department of explicitly conspiring with its competitors to fix the price of a commonly prescribed cholesterol drug. 

(a) What is the difference between horizontal price fixing and vertical price fixing? Was Teva accused of horizontal price fixing or of vertical price fixing? Explain your reasoning.

(b) Would the business practice that Teva was accused of be considered per se illegal or would the legality of this practice be judged by the rule-of-reason criterion? If Teva’s case goes to trial, would “plus factors” be considered to determine the trial’s outcome? Explain your reasoning. 

(c) Use the course material on the free-market economic system to explain why there are governmental laws against horizontal and vertical price fixing.