Exam 14: Oligopoly: Firms in Less Competitive Markets

What is a second-price auction?

Because many business situations are repeated games, firms may be able to avoid the prisoner's dilemma and implicitly collude to keep prices high.

Table 14-4 Alistair Luggage and Baine Baggage are the only firms selling luggage in the upscale town of Montecito. Each firm must decide on whether to increase its advertising spending to compete for customers. If one firm increases its advertising budget but the other does not, then the firm with the higher advertising budget will increase its profit. Table 14-4 shows the payoff matrix for this advertising game. -Refer to Table 14-4. Does Baine have a dominant strategy and if so, what is it?

A subgame-perfect equilibrium is a Nash equilibrium in which no player can make himself better off by changing his decision at any decision node.

Explain the difference between a cooperative equilibrium and a noncooperative equilibrium in game theory.

Decision trees are commonly used to illustrate how firms make business decisions that depend on the actions of rival firms. A decision tree has boxes that contain points that represent when firms must make the decisions contained in the boxes. What are these points called?

Table 14-6 There are two mobile home manufacturers in Nevada, Sturdy Homes (S) and My Haven (M). Sturdy Homes has been in the market for a long time and must now compete with newcomer, My Haven. Suppose that Sturdy Homes believes that My Haven will match any price it sets. Use Table 14-6 to answer the following question and assume throughout that Sturdy Homes believes that My Haven will match any price it sets. -Refer to Table 14-6. What price will Sturdy Homes charge and what profit does Sturdy Homes expect to make?

Which of the following is most likely to exert the bargaining power of a buyer?

An agreement among firms to charge the same price or otherwise not to compete is called

Figure 15-18 -An oligopoly firm is similar to a monopolistically competitive firm in that

Which of the following statements is generally true?

A fundamental assumption in game theory is that players do not interact with each other.

In Michael Porter's five competitive forces model, what do the competitive forces determine?

Economists use game theory to analyze oligopolies because

All of the following are characteristics of game theory except

A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called

Natural resource cartels such as OPEC are inherently unstable because their members operate with excess capacity and have an incentive to cheat on their output quotas.

In recent years online bookseller Amazon.com has lowered its profits by offering some of its customers free shipping and building more warehouses to hold its inventories. Which of the following explains Amazon.com's actions?

Figure 14-2 The government of a developing country plans to award two firms, Gigacom and Xenophone, the exclusive rights to share the market for high speed Internet service. Gigacom and Xenophone can both provide the service either via television cable lines or via direct subscriber line (dbl). Suppose the government is considering a proposal to delay one firm's entry into the market on the grounds that it wants to prevent "harmful" competition. Figure 14-2 shows the decision tree for this game. -Refer to Figure 14-2. If the government delays Gigacom's entry and Xenophone moves first, what is the likely outcome in the market?

What is the dominant strategy in a second-price auction?