Exam 14: Oligopoly: Firms in Less Competitive Markets

According to an article in the Wall Street Journal, "The big car makers are pushing a wide array of new technology into production, responding to relentless competitive pressure, rising energy prices and consumer demand for better safety. Source: Joseph B.White, "Ford, GM Eye Shift in Buying Habits," Wall Street Journal, May 22, 2006. Which of Porter's competitive forces does this statement allude to?

In a sequential game, one firm will act first and then other firms will respond.

Figure 14-4 Rainbow Writer (RW)is a small online company selling a highly rated software package for engraving words onto objects produced by 3D printers. The firm currently earns a profit of $2 million per year selling its package exclusively on its Website. Odeon, the producer of the most popular 3D printers has expressed interest in bundling Rainbow Writer's product with its printers. Odeon expects that bundling would further boost its sales and allow it to sell its printers at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.4 shows the decision tree for the Rainbow Writer-Odeon bargaining game. -Refer to Figure 14-4.In a real world situation involving Rainbow Writer and Odeon, what scenario below might permit Rainbow Writer to rationally refuse an offer from Odeon of $40 per copy of the software package?

Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.

Collusion between two firms occurs when

Which of the following is not a characteristic of an oligopoly?

Price leadership is a form of explicit collusion where one firm in an oligopoly announces a price change and expects all other firms to follow suit.

Table 14-4 Alpha and Beta are the only firms selling gyros in the upscale town of Delphi. Each firm must decide on whether to offer a discount to students to compete for customers. If one firm offers a discount but the other does not, then the firm that offers the discount will increase its profit. Table 14-4 shows the payoff matrix for this game. -Refer to Table 14-4.What is the Nash equilibrium in this game?

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real-world results?

A game in which pursuing dominant strategies results in noncooperation that leaves all parties worse off is a

Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.

Most economists are concerned about entry barriers.Why is this so important to them?

Table 14-4 Alpha and Beta are the only firms selling gyros in the upscale town of Delphi. Each firm must decide on whether to offer a discount to students to compete for customers. If one firm offers a discount but the other does not, then the firm that offers the discount will increase its profit. Table 14-4 shows the payoff matrix for this game. -Refer to Table 14-4.Does Alpha have a dominant strategy and if so, what is it?

Explain why OPEC is caught in a prisoner's dilemma?

According to Porter's Five Competitive Forces Model, which kinds of products are most likely to limit the ability of firms in an industry to raise prices?

In economics, the study of the decisions of firms in industries where the profits of each firm depend on its interactions with other firms is called

Figure 14-3 Rainbow Writer (RW)is a small online company selling a highly rated software package for engraving words onto objects produced by 3D printers. The firm currently earns a profit of $2 million per year selling its package exclusively on its Website. Odeon, the producer of the most popular 3D printers has expressed interest in bundling Rainbow Writer's product with its printers. Odeon expects that bundling would further boost its sales and allow it to sell its printers at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.3 shows the decision tree for the Rainbow Writer-Odeon bargaining game. -Refer to Figure 14-3.How will Rainbow Writer respond to Odeon's two possible offers?

Table 14-4 Alpha and Beta are the only firms selling gyros in the upscale town of Delphi. Each firm must decide on whether to offer a discount to students to compete for customers. If one firm offers a discount but the other does not, then the firm that offers the discount will increase its profit. Table 14-4 shows the payoff matrix for this game. -Refer to Table 14-4.Does Beta have a dominant strategy and if so, what is it?

Competition from substitute goods is more of a threat when switching costs are high.

Assume that the four-firm concentration ratio in an industry is 85 percent.Which of the following statements uses one of the five competitive forces to argue that this industry may be more competitive than its concentration ratio suggests?