Exam 17: Oligopoly

Game theory is important for the understanding of which type of markets

There are two types of markets in which firms face some competition yet are still able to have some control over the prices of their products.What are the names given to these market structures

While on vacation in Berserk, you are arrested and accused of spying for your country. You are, of course, innocent. Your captors inform you that if you confess, you will receive a sentence of six months while your co-conspirator (whom you have never heard of) will receive a sentence of thirty years. If you both confess you will each receive a sentence of three years. You are also told that your co-conspirator is being offered the same option. You suspect that there is not enough evidence to convict you (and you will be allowed to leave Berserk immediately) unless your alleged co-conspirator confesses. What should you choose to do and why?

Table 17-2 The information in the table depicts the total demand for wireless Internet subscriptions in a small urban market. Assume that each wireless Internet operator pays a fixed cost of $100,000 (per year) to provide wireless Internet in the market area and that the marginal cost of providing the wireless Internet service to a household is zero. -Refer to Table 17-2.Assume that there are two profit-maximizing wireless Internet companies operating in this market.Further assume that they are not able to "collude" on price and quantity of wireless Internet subscriptions to sell.How many wireless Internet subscriptions will be collectively sold (by both firms) when this market reaches a Nash equilibrium

Consider the following game.Bill and Ben are arrested and charged with a bank robbery.The district attorney separates them and offers them the deal given in the payoff matrix below.Their penalty for committing the crime is imprisonment A.What is the dominant strategy for each player? B.Compute the Nash equilibrium of this game.What is the predicted outcome of this game?ANSWER: A.Both confess.B.They both confess and get 10 years.

Scenario 17-2 Imagine that two oil companies, Big Petro Inc.and Gargantuan Gas, own adjacent oil fields.Under the fields is a common pool of oil worth $24 million.Drilling a well to recover oil costs $1 million per well.If each company drills one well, each will get half of the oil and earn a $11 million profit ($12 million in revenue minus $1 million in costs).Assume that having X percent of the total wells means that a company will collect X percent of the total revenue. -Refer to Scenario 17-2.If Big Petro Inc.were to drill a second well,what would its profit be if Gargantuan Gas did not drill a second well

Although the practice of predatory pricing is a common claim in antitrust suits,why are some economists sceptical of this argument

When strategic interactions are important to pricing and production decisions,what will a typical firm do

Which characterization typically applies to monopolistically competitive firms

Resale price maintenance prevents retailers from competing on price.

Assume that a local bank sells two services,chequing accounts and ATM card services.Each customer chooses to use only one service.Mr.Donethat is willing to pay $8 a month for the bank to service his chequing account and $5 a month for unlimited use of his ATM card.Ms.Beenthere is willing to pay only $5 for a chequing account,but is willing to pay $8 for unlimited use of her ATM card.To keep this example simple,assume that the bank can provide each of these services at zero marginal cost. a.If the bank is unable to use tying,what is the profit-maximizing price to charge for a chequing account b.If the bank is unable to use tying,what is the profit-maximizing price to charge for unlimited use of an ATM card c.If the bank is able to use tying to price chequing account and ATM service,what is the profit-maximizing price to charge for the tied good d.How much additional profit does the bank make when it switches to the use of a tying strategy to price chequing account and ATM service

Table 17-1 Imagine a small town in which only two residents, Matthew and Anna, own wells that produce water for safe drinking. Each Saturday, Matthew and Anna work together to decide how many litres of water to pump, bring the water to town, and sell it at whatever price the market will bear. To keep things simple, suppose that Matthew and Anna can pump as much water as they want without cost; therefore, the marginal cost of water equals zero. The weekly town demand schedule and total revenue schedule for water is reflected in the table. -Refer to Table 17-1.Since Matthew and Anna operate as a profit-maximizing monopoly in the market for water,what price will they charge to sell 80 litres of water

During the 1990s,members of OPEC operated independently from one another.What did this cause the world market for crude oil to become close to

When two firms advertise to attract the same customers,what are their advertising strategies

As the number of firms in an oligopolistic market grows larger,what does the price approach

What are the two types of imperfectly competitive markets

Even when allowed to collude, firms in an oligopoly will choose to cheat on their agreements with the rest of the cartel. Why?

Assuming that oligopolists do not have the opportunity to collude,once they have reached the Nash equilibrium,what actions will they take next

What will happen when an oligopoly market reaches a Nash equilibrium

Two major North American car makers are each considering expanding into the Vietnamese automobile market.Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision.