Exam 15: Oligopoly

What is the best outcome for society: when firms in an oligopoly enter into a collusive agreement to operate as a monopoly or when they act as perfect competitors? Briefly explain your answer.

Sarah's Soothing Diapers, Inc. and Orville's Odorless Diapers, Inc. are duopolists, who have agreed to collude. Orville has decided that he will comply with the collusive agreement as long as Sarah cooperated in the previous period. But if Sarah cheated in the previous period, Orville will punish Sarah by cheating in the current period. Orville's strategy is referred to as a

"If an industry's Herfindahl-Hirschman Index is below 1,000, a merger between any two firms in that industry will be disallowed." Comment on the accuracy of the previous statement.

Two duopoly firms that sell an identical good form a cartel. They decide to collude and fix the price of their good. In this prisoners' dilemma type situation, the likely outcome is

Firm A -Firms A and B can conduct research and development (R&D) or not conduct it. R&D is costly but can increase the quality of the product and increase sales. The payoff matrix is the economic profits of the two firms and is given above, where the numbers are millions of dollars. The Nash equilibrium occurs when

The EU's antitrust chief in November 2008 fined car glass producers Asahi, Pilkington, Saint-Gobain and Soliver more than 1.3 billion euros ($1.66 billion) for price-fixing, the largest sum ever levied by the EU for a cartel. Price fixing is a violation of ________.

American -There are two can companies, American and National, which have entered into a collusive agreement. The payoff matrix of economic profits is above. If National is able to cheat on the agreement but American complies with the agreement, what amount of economic profit is made by National?

Why would a profit maximizing monopolist in a contestable market set its price at a level below that which maximizes short run profits?

Antitrust law is law that

When is price fixing among competitors not a violation of the antitrust laws?

In a prisoner's dilemma game, each person will pick

-The Herfindahl-Hirschman Index is used as a guideline to determine if a market is competitive or concentrated. Calculate the index value for each market described below. a) 100 firms, each of which produces 1 per cent of market output b) 50 firms, each of which produces 2 per cent of market output c) 25 firms, each of which produces 4 per cent of market output d) 20 firms, each of which produces 5 per cent of market output e) 10 firms, each of which produces 10 per cent of market output f) 5 firms, each of which produces 20 per cent of market output g) 2 firms, each of which produces 50 per cent of market output

A collusive agreement between two duopolists is similar to the prisoners' dilemma because in both games,

What is a Nash equilibrium? Is this equilibrium necessarily the best outcome for the players? Give an example.

The sum of the squares of the market share for the fifty largest firms in a market is the basis of the government's current merger guidelines.

Limit pricing is a strategy which is intended to deter entry into an industry.

Oscar -Oscar and Felix are the only firms that clean offices in a large city. They agree to operate as a cartel. The payoff matrix shows the economic profit that each firm can make. If the game is played repeatedly and Felix and Oscar both use a tit-for-tat strategy, then ________.

Market share in the Widget industry -Using the market shares in the table above, if Widgotech buys Widgette the HHI will

Which of the following models is the best to explain price wars?

A market in which the Herfindahl-Hirschman Index is 1,000 is regarded by the Federal Trade Commission as