Exam 11: Oligopoly: Markets With Few Competitors

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

Collusion would be common in an oligopoly and a monopolistically competitive industry.

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

In which type of industry is interdependence most common?

Suppose we want to use game theory to analyse how an oligopolist selects its optimal price.The cells of the payoff matrix show

Oligopolies exist and do not attract new rivals because

All games share three characteristics.Two of these characteristics are rule and strategies.What is the third characteristic called?

The prisoner's dilemma is used to analyse business situations in which one firm acts first and then other firms respond.

The dominant strategy in the prisoner's dilemma is

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

Which of the following statements is generally true?

Explain why selling output at a price below that at which marginal revenue equals marginal cost (MR = MC)might serve to deter entry of a potential competitor. __________________________________________________________________________________________________________________________________________________________________________________________

Table 11.3 Firm A(Alistair's)and Firm B (Baine's)are the only firms selling luggage in the upscale town of Adelaide.Each firm must decide on whether to increase its advertising spending to compete for customers.If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit.Table 11.3 shows the payoff matrix for this advertising game. -Refer to Table 11.3.How are the firms in this advertising game caught in a prisoner's dilemma?

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

Table 11.1 Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow.Each firm must decide on whether to increase its advertising spending to compete for customers.Table 11.1 shows the payoff matrix for this advertising game. -Refer to Table 11.1.In this game, the Nash equilibrium is

Which of the following is important in determining the extent of competition in an industry?

Firms in an oligopoly are said to be interdependent.What does this mean? __________________________________________________________________________________________________________________________________________________________________________________________

In which of the following cartels is total cartel profit likely to be the highest?

An equilibrium in a game in which players pursue their own self-interests and do not cooperate is called a

Competition in the form of advertising, better customer service, or longer warranties can also reduce profits by raising costs.