Exam 14: Oligopoly: Firms in Less Competitive Markets

For years economists believed that market structure explained the ability of some firms to earn economic profits. Today, economists and business strategists put greater emphasis on

In most business situations where firms compete, often they can escape the prisoner's dilemma and reach the most profitable outcome. Which of the following is a reason for this?

Figure 14-5 A few years ago Netflix (N) pioneered an online DVD rental service. Blockbuster (B), a brick and mortar DVD/video rental company, waited until Netflix had been in business for over a year before deciding whether to establish its own online rental service. At this point, Netflix had to decide whether or not to lower its subscription price in order to deter Blockbuster's entry into the market. Figure 14-5 shows the decision tree for the Netflix-Blockbuster entry game. -What is a subgame?

A consequence of the quota that has been imposed on the importation of sugar into the United States is

Table 14-8 Two rival oligopolists in the athletic supplements industry, the Power Fuel Company and the Brawny Juice Company, have to decide on their pricing strategy. Each can choose either a high price or a low price. Table 14-8 shows the payoff matrix with the profits that each firm can expect to earn depending on the pricing strategy it adopts. -Refer to Table 14-8. If Brawny Juice selects a high price, what is Power Fuel's best strategy and what will Power Fuel earn as a result of this strategy?

Producing a homogeneous product occurs in which of the following industries?

Since 1972, the world price of oil has been largely determined by OPEC, which controls about 75 percent of the world's proven oil reserves. Since 1972 the price of oil has

According to Porter's Five Competitive Forces Model, which kinds of products are most likely to limit the ability of firms in an industry to raise prices?

There is much evidence to suggest that airlines are more likely to match price cuts than price increases. Which of the following best explains this evidence?

Which of the following is an example of a way in which a firm in oligopoly can escape the prisoner's dilemma?

A supplier of paper napkins to the fast food industry is unlikely to have significant bargaining power.

Which of the following explains why two firms, Apex and Bongo, would engage in implicit collusion, rather than explicit collusion?

Table 14-1 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 14-1 shows the payoff matrix for this advertising game. -Refer to Table 14-1. What is the Nash equilibrium in this game?

Figure 14-5 A few years ago Netflix (N) pioneered an online DVD rental service. Blockbuster (B), a brick and mortar DVD/video rental company, waited until Netflix had been in business for over a year before deciding whether to establish its own online rental service. At this point, Netflix had to decide whether or not to lower its subscription price in order to deter Blockbuster's entry into the market. Figure 14-5 shows the decision tree for the Netflix-Blockbuster entry game. -Why are decision trees useful to managers who plan business strategies?

Which of the following is not among Porter's competitive forces?

Figure 14-4 Rainbow Writer (RW) is a small online company selling a highly rated software package for printing color labels directly onto CDs. The firm currently earns a profit of $2 million per year selling its package exclusively on its Web site. Odeon, the producer of the most popular software package for editing and burning CDs and DVDs, has expressed interest in bundling Rainbow Writer's product into its own package. Odeon expects that bundling would further boost its sales and allow it to sell the new bundled product at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14-4 shows the decision tree for the Rainbow Writer-Odeon bargaining game. -Refer to Figure 14-4. How will Rainbow Writer respond to Odeon's two possible offers?

What is the incentive for a firm to join a cartel?

Figure 14-5 A few years ago Netflix (N) pioneered an online DVD rental service. Blockbuster (B), a brick and mortar DVD/video rental company, waited until Netflix had been in business for over a year before deciding whether to establish its own online rental service. At this point, Netflix had to decide whether or not to lower its subscription price in order to deter Blockbuster's entry into the market. Figure 14-5 shows the decision tree for the Netflix-Blockbuster entry game. -Refer to Figure 14-5. If Netflix lowers its price will this deter Blockbuster from setting up an online DVD rental service?

Two firms would sometimes be better off if they got together and agreed to charge a high price, rather than to compete and risk having to charge a lower, competitive price. What is the greatest deterrent to this strategy?

An equilibrium in which each player chooses its best strategy given the strategies chosen by the other players is called a Nash equilibrium.