Exam 14: Oligopoly: Firms in Less Competitive Markets

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

Producing a homogeneous product occurs in which of the following industries?

In 1976 New Jersey voters passed a referendum to legalize gambling.Several gambling casinos opened in Atlantic City beginning in 1978 and were initially very profitable,attracting people from the Mid-Atlantic and Northeastern states.Entrepreneurs in these states were unable to compete with the Atlantic City casinos because casino gambling was illegal in their states.For these entrepreneurs in the other states,the barrier to entry they were facing was

Most economists are concerned about entry barriers.Why is this so important to them?

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 subgame-perfect equilibrium in this situation? Explain.

If firms are protected by substantial barriers to entry,short-run profits can turn into long-run profits.

Economists use game theory to analyze oligopolies because

In most business situations where firms compete,often they can escape the prisoner's dilemma and reach the most profitable outcome.Which of the following is a reason for this?

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?

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

In an oligopoly,firms can increase their market power by

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?

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

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

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,is a threat by Gigacom that it will provide DSL service if Xenophone provides cable service a credible threat?

List the competitive forces in the five competitive forces model.

A member of a cartel like OPEC has an incentive to

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

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

Oligopolies are difficult to analyze because