Exam 14: Oligopoly: Firms in Less Competitive Markets

A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city, when the correct choice depends on whether a competing firm will build a new store in the same city.Which of the following is used to analyze this type of decision?

Suppose we want to use game theory to analyze how an oligopolist selects its optimal price.The payoff matrix shows

Each member of OPEC can increase its income by selling more oil than its output quota because

Because many business situations are repeated games, firms may be able to avoid the prisoner's dilemma and implicitly collude to keep prices high.

A patent is an example of

For years, economists believed that market structure explained the ability of some firms to earn economic profits.For example, firms in industries with little competition and high barriers to entry would earn higher profits than firms in competitive industries with low entry barriers.Which of the following has caused economists to question this explanation and seek other explanations for why firms are profitable?

For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite, the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

A patent is a government-imposed entry barrier because

An example of a government-imposed barrier to entry gives a firm the exclusive right to a new product for a period of 20 years from the date the product is invented.This entry barrier is known as

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 Walmart and Target both advertise that they will match the lowest price offered by any competitor.What is the purpose of such a strategy?

Table 14-1 LimoZeenz and AirPorter and are the only two airport shuttle and limousine rental service companies in the mid-sized town of Shady Shores. Each firm must decide on whether to offer its customers a mid-week discount for airport transportation. Table 14-1 shows the payoff matrix for profits earned by each company based on either offering or not offering the discount. -Refer to Table 14-1.Let's suppose the game starts with each firm offering the mid-week discount so that LimoZeenz earns a profit of $6,000 and AirPorter earns a profit of $12,000.Is there an incentive for any one firm to stop offering the mid-week discount?

A situation in which each firm chooses the best strategy given the strategies chosen by other firms is called a

Table 14-7 The payoff matrix shown above assumes that Perfect Plants and Floribunda Florist must decide whether to offer same-day delivery for their products. The matrix shows how much profit each firm will earn if it does or does not offer same-day delivery. The amount of profit for one firm depends on whether the other firm offers same-day delivery. -Refer to Table 14-7.Which of the following statements is true?

What is a prisoner's dilemma?

In many business situations one firm will act first, and then other firms will respond.To help analyze these types of situations economists use

An example of a barrier to entry is

Article Summary Inventories of SUVs, the most popular class of automobile in the United States, have been growing, and automakers have been increasing incentives to reduce the supply. According to J.D. Power and Associates, incentives on SUVs rose an average of 24 percent from 2016 to 2017. Specials for Presidents' Day included no-money-down leases, cash rebates, and zero-interest loans on many SUV models from automakers including Ford, General Motors, Fiat Chrysler, Toyota, and Honda. Automakers have been able to afford larger incentives on SUVs due to the profitability of that segment of the auto market, but according to data from J.D. Power, while incentives are rising, the average sales price of SUVs has also started to decline. Source: Keith Naughton and Jamie Butters, "Automakers Offer Massive Rebates to Move Surplus of SUVs," bloomberg.com, February 17, 2017. -Refer to the Article Summary.What happens to the profit a car company makes on each car sold if it offers incentives such as cash rebates, low-interest loans, or lease incentives to customers? How might a car company decide which of these strategies to use?

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6,000 units of output.In this case, this industry would be

How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?

When top managers of all four major airlines publicly stated that they intended to undertake only modest increases in capacity by buying additional planes or flying additional routes, the Department of Justice