WASHINGTON—The Justice Department is preparing to take legal action against Live Nation Entertainment Inc. on allegations the company has sought to strong-arm concert venues into using its dominant Ticketmaster subsidiary, according to people familiar with the matter.

The department believes the concert-promotion giant’s conduct has violated the merger settlement Live Nation and Ticketmaster reached with the government in 2010, the people said. Under that agreement, the department’s antitrust division allowed the companies…

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