Exam 15: Oligopoly and Strategic Behavior

Pepsi is considering an expensive advertising campaign to steal market share from Coca-Cola.Why might both companies have a dominant strategy to advertise,even if advertising attracts few new customers to the cola drink industry?

Oligopoly firms:

Exhibit 15-3 Prior to the year 2000,the United States considered renewal of Most Favored Nation (MFN)trading status with China annually (Most Favored Nation trading status is now called Normal Trade Relations).Historically,legislators made threats of not renewing MFN status because of alleged human rights abuses in China.The nonrenewable of MFN trading status would likely have triggered retaliatory measures by China.The game below reflects the potential economic gains from trade in a scenario in which China chooses whether to impose trade sanctions against U.S.firms and the United States chooses whether to renew MFN status with China. Refer to Exhibit 15-3.When this game reaches a Nash equilibrium,the gains from trade will be:

Exhibit 15-6 Refer to Exhibit 15-6.The Nash equilibrium outcome of the game depicted is:

If an industry is dominated by three large producers whose revenues represent 30%,30%,and 30% of the market's total revenues with the remaining two firms each representing 5%,what would be the measure of the Herfindahl-Hirschman Index for this industry?

The interdependence among oligopoly firms arises because:

As the number of firms in an oligopoly ____,the oligopoly becomes more ____.

In an oligopoly,which strategy - collusion or competition - resembles the choice of remaining silent in a prisoners' dilemma? Why?

Cartels are likely to be better able to prevent their members from cheating on an agreement:

In game theory,a strategy that is optimal no matter what your opponent does is called a dominant strategy.

____ occurs when a consumer's quantity demanded for a good increases because a ____ number of consumers purchase the same good.

Economists consider the breakfast food industry to be an oligopolistic market.

In the "Prisoners' Dilemma" game,an individual player is best off if:

When firms are faced with making strategic choices in order to maximize profit,economists typically use ____ to model their behavior.

A "Prisoners' Dilemma" game demonstrates how ____ is often rational for individuals even though ____.

Exhibit 15-5 Refer to Exhibit 15-5.In the game depicted,between two cereal producers is:

At a Nash equilibrium,each player in a game is said to be doing as well as he can given the actions of his competitor.

In which market models are firm's demand curves different from their marginal revenue curves?

A group of firms,operating in collusion,incur costs of production of $15 per unit.The price that currently maximizes their profit is $19.Knowing that potential competitors could enter the market with production costs of $17 per unit,what price are the colluders likely to charge? Why?

The ____ takes on particular importance because it is a self-enforcing equilibrium.That is,once this equilibrium is established,neither firm has an incentive to move.