Exam 14: Oligopoly: Firms in Less Competitive Markets

Table 14-7 The payoff matrix shown above assumes that Perfect Plants and Florabunda Florist must decide whether to offer same-day delivery for their products. The matrix shows how much profit each firm will earn if it does or does not offer same-day delivery. The amount of profit for one firm depends on whether the other firm offers same-day delivery. -Refer to Table 14-7.Which of the following statements is true?

Patents,tariffs and quotas are all examples of

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

An oligopoly firm is similar to a monopolistically competitive firm in that

Decision trees can only be used to analyze sequential games.

The bargaining power of buyers increases if

Prisoner's dilemma games imply that cooperative behavior between two people or two firms always breaks down.But reality teaches us that people and firms often cooperate successfully to achieve their goals.Why do the results from prisoner's dilemma games fail to predict real world results?

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

What is a prisoner's dilemma?

There are two firms in the residential paint industry,Cool Shades (C)and Warm Hues (W).They collude to share the market equally.They jointly set a monopoly price and split the quantity demanded at that price.Here are their options: i.They continue to collude (no cheating)and make $12 million each in profits. ii.One firm cheats and the other does not.The firm that cheats makes a profit of $14 million whereas the firm that doesn't makes a profit of $9 million. iii.They both cheat and each firm makes a profit of $7 million. a.Construct a payoff matrix for these two firms. b.How does this situation relate to the prisoner's dilemma? c.If each firm acted noncooperatively,how much profit would each make? d.Are the firms better off colluding (with no cheating)or competing? Explain.

What is an oligopoly? Give two examples of oligopolistic industries in the United States.

Refer to the Article Summary.What happens to the profit a car company makes on each car sold if it offers incentives such as cash rebates to customers? What happens to the company's profit per car if it offers zero percent financing as an incentive? How might a car company decide which of these strategies to use?

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

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.If Alistair assumes that Baine would increase its advertising budget,what should it do?

Oligopolies are difficult to analyze because

In 2013,the Educational Testing Service (ETS)charged $51 to take the Scholastic Aptitude Test (SAT)but $150 to take the Graduate Record Exam (GRE).One reason for this difference in price is

All of the following are ways by which existing firms can deter the entry of new firms into an industry except

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.Does it make sense for Netflix to lower its price in order to deter Blockbuster's entry into the online DVD rental market?

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.What is the Nash equilibrium in this game?

What is a subgame?