Exam 14: Oligopoly: Firms in Less Competitive Markets

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 act out of individual self-interest,which 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?

When an oligopoly market is in Nash equilibrium

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.How are the firms in this advertising game caught in a prisoner's dilemma?

An oligopoly between two firms is called

In Porter's Five Competitive Forces model,"competition from substitute goods or services" refers to

The profit-maximizing level of output and the profit-maximizing price for an oligopolist cannot be calculated when we don't know

Monopolistic competition differs from oligopoly in that in monopolistic competition firms act independently while in oligopoly firms act interdependently.

As word processing on personal computers expanded,sales of typewriters began to disappear.Which of Porter's competitive forces does this event demonstrate?

When Wal-Mart decides to build a new retail store in a town,it will decide to build a large store rather than a small store if the large store is expected to earn a greater economic profit.What other motive would Wal-Mart have for choosing to build a large store?

A subgame is a simultaneous game embedded in a sequential game.

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?

Economies of scale will create a barrier to entry in an oligopoly industry when

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.Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not,why and what is the Nash equilibrium?

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.Which of the following statements is true?

Explain how collusion makes firms better off.Given the incentives to collude,briefly explain why every industry does not become a cartel.

Oligopolies exist and do not attract new rivals because

What is the dominant strategy in the prisoner's dilemma?

Firms in an oligopoly are said to be interdependent.What does this mean?

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