Exam 14: Oligopoly: Firms in Less Competitive Markets

Which of the following explains why two firms,Apex and Bongo,would engage in implicit collusion,rather than explicit collusion?

Which of the following is not a barrier to entry?

Competition from substitute goods is more of a threat when switching costs are high.

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.Suppose pricing PlayStations is a repeated game in which Wal-Mart and Target will be selling the game system in competition over a long period of time.In this case,what is the most likely outcome?

A sequential game can be used to analyze whether a retail firm should build a large store or a small store in a city,when the correct choice depends on whether a competing firm will build a new store in the same city.Which of the following is used to analyze this type of decision?

For many years the Aluminum Company of America (Alcoa)controlled most of the world's supply of high quality bauxite,the ore needed to produce aluminum.What type of entry barrier was responsible for Alcoa's position in the aluminum industry?

By the 21st century few people purchased printed encyclopedias.Which of the following competitive forces best explains this?

The most important barrier to entry is economies of scale.

How does the demand curve for an oligopoly firm differ from the demand curves for firms in competitive market structures?

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?

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?

If the painting firms in a city sign a contract outlining a pricing plan,they are involved in

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.If Lexus lowers its price,will this deter BMW from entering the market?

The larger the number of firms in an industry

A dominant strategy

Explain why member firms of a cartel like OPEC have incentives to agree to a low cartel production level and then produce more than its quota.

In game theory,the three key characteristics of a game are

A prisoner's dilemma leads to a noncooperative equilibrium.

The breakfast cereal industry has a four-firm concentration ratio of 78 percent.Is this enough information to classify the industry as an oligopoly? Is a high concentration ratio evidence that an industry is not competitive?

According to Porter's Five Competitive Forces Model,similar products produced by different firms within the industry affects a firm's ability to raise prices far more than substitutable products produced outside the industry.