Exam 15: Oligopoly and Strategic Behavior

Exhibit 15-2 Two cigarette manufacturers (Firm A and Firm B)are faced with lawsuits from states to recover the health care-related expenses associated with cigarette smoking.Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses).State prosecutors do not have access to the same data used by the cigarette manufacturers,and thus will have difficulty recovering full costs without the help of at least one tobacco firm's evidence.Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the states. Refer to Exhibit 15-2.If both firms follow a dominant strategy,Firm A's profits (losses)will be:

What are the characteristics of oligopoly?

Exhibit 15-6 Refer to Exhibit 15-6.The manufacturers of Pepsi and Coca-Cola must each decide whether to launch new ad campaigns to advertise their respective soft drinks.The payoff matrix shows the profits earned from sales of Pepsi and Coca-Cola under alternative advertising scenarios.Based on this information,one can say that:

An example of an oligopoly is:

Exhibit 15-2 Two cigarette manufacturers (Firm A and Firm B)are faced with lawsuits from states to recover the health care-related expenses associated with cigarette smoking.Both cigarette firms have evidence that indicates that cigarette smoke causes lung cancer (and other related illnesses).State prosecutors do not have access to the same data used by the cigarette manufacturers,and thus will have difficulty recovering full costs without the help of at least one tobacco firm's evidence.Each firm has been presented with an opportunity to lower their liability in the suit if they cooperate with attorneys representing the states. Refer to Exhibit 15-2.When this game reaches a Nash equilibrium,profits for Firm A and Firm B will respectively be:

Why are successful collusive oligopolies rather short-lived?