Exam 14: Oligopoly: Firms in Less Competitive Markets

Figure 14-3 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 14-3 shows the decision tree for the Rainbow Writer-Odeon bargaining game. -Refer to Figure 14-3. What is the equilibrium outcome in this game, and is this a subgame-perfect equilibrium?

Doctors and lawyers in every state need a license to practice. This is an example of

Table 14-2 Table 14-2 shows the payoff matrix for Wal-Mart and Target from every combination of pricing strategies for the popular PlayStation 3. At the start of the game each firm charges a low price and each earns a profit of $7,000. -Refer to Table 14-2. For each firm, is there a better outcome than the current situation in which each firm charges the low price and earns a profit of $7,000?

The people firms hire to attempt to convince state legislators and members of Congress to pass laws that are favorable to the economic interests of the firms are called

Each member of OPEC can increase its income by selling more oil than its output quota because

Consider a U-shaped long-run average cost curve that has a minimum efficient scale at 6,000 units of output. In this case, this industry would be

Interdependence of firms is most common in

If economies of scale are significant, the typical firm will not reach the minimum point on its long-run average cost curve until it has produced a large fraction of industry sales.

Why does a prisoner's dilemma lead to a noncooperative equilibrium?

Figure 14-1 Assume that Lexus (L) is the first automobile company to produce a luxury class hybrid automobile and is the only such company for the past four years. BMW is now considering producing its own luxury hybrid automobile and Lexus must decide whether or not to lower the price of its luxury hybrid to counter BMW's entry into the luxury hybrid niche. -Refer to Figure 14-1. Should Lexus lower its price in order to deter BMW's entry into the luxury hybrid automobile market?

Suppose we want to use game theory to analyze how an oligopolist selects its optimal price. The cells of the payoff matrix show

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 the firms cooperate, what prices will they select?

Table 14-3 Suppose OPEC has only two producers, Saudi Arabia and Nigeria. Saudi Arabia has far more oil reserves and is the lower cost producer compared to Nigeria. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. -Refer to Table 14-3. Is there a dominant strategy for Nigeria and, if so, what is it?

The DeBeers Company of South Africa was able to block competition through

In an oligopoly, minimum efficient scale is likely to occur at a level of output that is a large fraction of industry sales.

Airlines often engage in last-minute price cutting to fill remaining empty seats on a flight because this practice will generally

A set of actions that a firm takes to achieve a goal is the definition of a

A prisoner's dilemma leads to a noncooperative equilibrium.

An oligopoly between two firms is called

A baseball hat worn by the Boston Red Sox Hall of Fame outfielder Ted Williams was auctioned on eBay. The three highest bidders and their bids were: Roger Bulava $5,000 Tony Millasiti $4,900 Joe Albano $4,200 What price did Roger have to pay for the Ted Williams hat?