Exam 17: Oligopoly

What are the three examples of controversial business practices that antitrust laws often prohibit?

Cartels in the United States are

To increase their individual profits, members of a cartel have an incentive to

Which strategy was the most successful in the prisoners' dilemma tournament?

Cartels with a small number of firms have a greater probability of reaching the monopoly outcome than do cartels with a larger number of firms.

Figure 17-2. Two companies, Acme and Pinnacle, each decide whether to produce a good quality product or a poor quality product. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-2. The more frequently this game is played, the more likely it is that

Figure 17-5. Two companies, ABC and QRS, are sellers in the same market. Each company decides whether to charge a high price or a low price. In the figure, the dollar amounts are payoffs and they represent annual profits for the two companies. -Refer to Figure 17-5. In what sense is the game involving ABC and QRS similar to the prisoners' dilemma game involving Bonnie and Clyde?

Table 17-13 Two home-improvement stores (Lopes and HomeMax) in a growing urban area are interested in expanding their market share. Both are interested in expanding the size of their store and parking lot to accommodate potential growth in their customer base. The following game depicts the strategic outcomes that result from the game. Increases in annual profits of the two home-improvement stores are shown in the table below. 14. -Refer to Table 17-13. When this game reaches a Nash equilibrium, annual profit will grow by

Table 17-15 This table shows a game played between two players, A and B. The payoffs in the table are shown as (Payoff to A, Payoff to B). -Refer to Table 17-15. Which of the following statements regarding this game is true?

Scenario 17-3. Consider two countries, Kinglandia and Rovinastan, that are engaged in an arms race. Each country must decide whether to build new weapons or to disarm existing weapons. Each country prefers to have more arms than the other because a large arsenal gives it more influence in world affairs. But each country also prefers to live in a world safe from the other country's weapons. The following table shows the possible outcomes for each decision combination. The numbers in each cell represent the country's ranking of the outcome (10 = best outcome, 1 = worst outcome). -Refer to Scenario 17-3. Which of these statements is correct? (i) Kinglandia is better off building new weapons if Rovinastan builds new weapons. (ii) Kinglandia is better off building new weapons if Rovinastan disarms existing weapons. (iii) Rovinastan is only better off building new weapons if Kinglandia builds new weapons.

Briefly describe the business practice of tying.

A cooperative agreement among oligopolists is more likely to be maintained,

Table 17-2 Imagine a small town in which only two residents, Abby and Brad, own wells that produce safe drinking water. Each week Abby and Brad work together to decide how many gallons of water to pump. They bring water to town and sell it at whatever price the market will bear. To keep things simple, suppose that Abby and Brad can pump as much water as they want without cost so that the marginal cost is zero. The weekly town demand schedule and total revenue schedule for water is shown in the table below: -Refer to Table 17-2. Suppose the town enacts new antitrust laws that prohibit Abby and Brad from operating as a monopoly. What will be the price of water once Abby and Brad reach a Nash equilibrium?

Economists claim that a resale price maintenance agreement is not anti-competitive because

An agreement between two duopolists to function as a monopolist usually breaks down because

Table 17-7 The information in the table below shows the total demand for internet radio subscriptions in a small urban market. Assume that each company that provides these subscriptions incurs an annual fixed cost of $20,000 (per year) and that the marginal cost of providing an additional subscription is always $16. -Refer to Table 17-7. Suppose there is only one internet radio provider in this market and it seeks to maximize its profit. The company will

Table 17-29 Suppose that two firms, Wild Willy's Wonderdrink (Firm W) and Hyper Hank's Hydration (Firm H), comprise the market for energy drinks. Each firm determines that it could lower its costs and increase its profits if both firms reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's energy drinks, but each firm also believes that if neither firm advertises, the cost savings will outweigh the lost sales. The table below lists each firm's individual profits: Firm W Breaks agreement Maintains agreement and advertises and does not advertise -Refer to Table 17-29. What is the outcome of this game?

Why do economists use game theory to study the actions of firms in oligopoly markets but not in other markets?

Which of the following statements is (are) true of the prisoners' dilemma?

Table 17-23 Two bottled beverage manufacturers (Firm A and Firm B) determine that they could lower their costs, and thus increase their profits, if they reduced their advertising budgets. But for the plan to work, each firm must agree to refrain from advertising. Each firm believes that advertising works by increasing the demand for the firm's product, but each firm also believes that if neither firm advertises, the costs savings will outweigh the lost sales. Listed in the table below are the individual profits for each firm. -Refer to Table 17-23. At the Nash equilibrium, how much profit will Firm B earn?