Exam 15: Oligopoly

Suppose two firms, FastNet and SmartCast are the only fast Internet providers in a city. They have identical costs and one firm's service is a perfect substitute for the other's. The industry is a natural duopoly. Suppose that FastNet and SmartCast collude and agree to share the market equally. -In the scenario above, which of the following actions will maximize the industry's economic profit?

-Two software firms have developed an identical new software application. They are debating whether to give the new app away free and then sell add-ons or sell the application at $30 a copy. The payoff matrix is above and the payoffs are profits in millions of dollars. What is the Nash equilibrium of the game?

The key feature of an oligopoly is that there

-Dell and Gateway must decide whether to lower their prices, based on the potential economic profits shown in the payoff matrix above. (The profits are in millions of dollars.) If the firms collude and don't cheat, Dell's profit is ________ million and Gateway's profit is ________ million.

In the prisoners' dilemma game, when each player takes the best possible action given the action of the other player

In the United States, a collusive agreement to restrict output and increases prices is

In the market for bottled water, Fresh Springs has a 30 percent share of the market, Swiss Springs has a 27 percent share, L'eau de France has a 13 percent share, and Mountain Water has a 10 percent share. The rest of the market consists of 20 firms with a 1 percent share of the market each. What is the value of the Herfindahl-Hirschman index?

A contestable market is a market in which there are one or a few firms and entry into the market is not costly.

What are the actions that are prohibited according to the Clayton Act and its amendments? What conditions must be met for these actions to be prohibited?

-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

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

A cartel is a group of firms which agree to

-Libertyville has two optometrists, Dr. Smith and Dr. Jones. Each optometrist can choose to advertise his service or not. The incomes of each optometrist, in thousands of dollars, are given in the payoff matrix above. Which of the following statements CORRECTLY describes Dr. Smith's strategy given what Dr. Jones may do?

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

The first federal antitrust law ever passed was the Sherman Act.

Why do most collusive agreements have difficulty surviving?

A strategy in which a player cooperates in the current period if the other player cooperated in the previous period, but the player cheats in the current period if the other player cheated in the previous period is called a

-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?

Describe the characteristics of an oligopoly.

Why do firms in an oligopoly find it difficult to cooperate and not cheat on a cartel agreement?