Exam 14: Oligopoly: Firms in Less Competitive Markets

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. In a real world situation involving Rainbow Writer and Odeon, what scenario below might permit Rainbow Writer to rationally refuse an offer from Odeon of $40 per copy of the software package?

The four-firm concentration ratio in the breakfast cereal industry is 78 percent. How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?