Exam 14: Oligopoly: Firms in Less Competitive Markets

In a subgame perfect equilibrium

Hewlett-Packard will not raise the prices of its personal computers without first considering how Dell might respond.This is evidence of

A four-firm concentration ratio measures

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?

A member of a cartel earns more profits by producing more than its quota and selling at a price higher than the cartel's price.

A reason why there is more competition among restaurants than among large discount department stores is that restaurants

A form of implicit collusion where one firm in an oligopoly announces a price change which is matched by other firms in the same industry is

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

Figure 14-7 -Refer to Figure 14-7.Uniguest,Inc.is a company that provides PCs with internet access and touch-sensitive screens to hotels.Suppose the Hard Rock Hotel and Casino in Las Vegas informs Uniguest that it is considering installing these systems in its hotel rooms.The Hard Rock expects to be able to charge higher prices for these rooms if it installs Uniguest's systems in its rooms.The two companies begin bargaining over what price the Hard Rock will pay Uniguest for its systems,and the decision tree shown above illustrates this bargaining game.Note that the profit figures listed in the decision tree are additional profits for the Hard Rock and total profits for Uniguest. a.Suppose the Hard Rock offers Uniguest $1,200 per system.Will Uniguest accept or reject this offer? Why? b.Suppose the Hard Rock offers Uniguest $800 per system.Will Uniguest accept or reject this offer? Why? c.Suppose Uniguest attempts to obtain a favorable outcome from the bargaining by telling the Hard Rock it will reject an $800-per-system offer.If the Hard Rock does not believe the threat is credible,what will it do? Why? What will Uniguest do? Why? d.Is there a sub-game perfect equilibrium in this situation? Explain.

Explain why OPEC is caught in a prisoner's dilemma?

On January 2,1971,all cigarette advertising was banned on U.S.television and radio stations.Did this ban likely increase or decrease the profits of cigarette companies in 1971? Briefly explain.

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.How will Rainbow Writer respond to Odeon's two possible offers?

Because of the shortcomings of concentration ratios,some economists prefer another measure of competition called

The bargaining power of suppliers increases if

An entry barrier exists when firms in an industry charge the lowest price possible for their products.

Table 14-5 Ming and Henri each run one of the two dry cleaning facilities in the town of Scaraby. Both consider offering free pickup and delivery services. Table 14-5 shows the payoff matrix containing the expected quarterly profits for each firm. -Refer to Table 14-5.What is the Nash equilibrium in this game?

Does the strength of each of the five competitive forces from Michael Porter's model remain constant over time? Briefly explain.

What do Sony,Microsoft,and Nintendo have in common?

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 (DSL). 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?

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