Exam 14: Oligopoly: Firms in Less Competitive Markets

An oligopoly between two firms is called

Game theory was developed in the 1940s by John von Neumann, a mathematician, and an economist named

What do Spotify and Apple have in common?

A supplier of paper napkins to the fast food industry is unlikely to have significant bargaining power.

In most business situations where firms compete, often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

Table 14-9 -Refer to Table 14-9.Saudi Arabia and Ecuador must decide how much oil to produce.Since the demand for oil is inelastic, relatively low production rates drive up prices and profits.Saudi Arabia, the world's largest and lowest-cost producer, is able to influence market price; it has an incentive to keep output low.Ecuador, on the other hand, is a relatively high-cost producer with much smaller reserves.Use the payoff matrix in Table 14-9 to answer the following questions. a.What is the dominant strategy for Saudi Arabia? b.What is the dominant strategy for Ecuador? c.What is the Nash equilibrium?

Explain how collusion makes firms better off.Given the incentives to collude, briefly explain why every industry does not become a cartel.

Which of the following statements about the prisoner's dilemma is false?

A supplier of an input is unlikely to have bargaining power if

Table 14-5 Martin and Lewis each run one of the two bingo parlors in Schenectady. Both consider offering free rides to and from the parlors. Table 14-5 shows the payoff matrix containing the expected weekly profits for each bingo parlor. -Refer to Table 14-5.What is the Nash equilibrium in this game?

Table 14-2 Table 14-2 shows the payoff matrix for Walmart and Target from every combination of pricing strategies for the popular PlayStation 4. At the start of the game each firm charges a low price and each earns a profit of $7,000. -Refer to Table 14-2.Suppose pricing PlayStations is a repeated game in which Walmart and Target will be selling the game system in competition over a long period of time.In this case, what is the most likely outcome?

The music streaming industry, where a firm's profitability depends on its interactions with other firms, is an example of

Figure 14-5 Netflix (N)was one of the first companies to offer streaming video services and is still considered a leader in the industry. Spotify (S)offers a music streaming service and in 2015 considered entering the video streaming business. At that point, Netflix had to decide whether or not to lower its subscription price in order to deter Spotify's entry into the market. Figure 14-5 shows a hypothetical decision tree for the Netflix-Spotify entry game. -Refer to Figure 14-5.Does it make sense for Netflix to lower its price in order to deter Spotify's entry into the streaming video market?

Sequential games are often used to analyze which two types of business strategies?

In recent years, Amazon has lowered its profits by offering some of its customers free shipping on books and building more warehouses to hold its book inventories.Which of the following explains Amazons actions?

On November 7, 1996, the Distilled Spirits Council of the United States decided to end its voluntary ban on television and radio liquor advertisement.The ban on hard liquor advertising had been in effect since 1936 for radio and 1948 for television.Assuming that advertising is a prisoner's dilemma, and that if one company advertises, its competitors will also choose to spend money to advertise, did the lifting of this ban likely increase or decrease the profits of hard liquor companies? Briefly explain.

Firms are more likely to find themselves in a prisoner's dilemma in sequential games as opposed to simultaneous games.

Which of the following is not necessarily a consequence of occupational licensing laws?

In a Nash equilibrium, all players select non-dominant strategies.

Consider two oligopolistic industries selling the same product in different locations.In the first industry, firms always match price changes by any other firm in the industry.In the second industry, firms always ignore price changes by any other firm.Which of the following statements is true about these two industries, holding everything else constant?