Exam 14: Oligopoly: Firms in Less Competitive Markets

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?

Godrickporter and Star Connections are the only two airport shuttle and limousine rental service companies in the mid-sized town of Godrick Hollow.Each firm must decide on whether to increase its advertising spending to compete for customers.Table 14-1 shows the payoff matrix for this advertising game. -Refer to Table 14-1.Let's suppose the game starts with each firm adhering to its original budget so that Godrickporter earns a profit of $6,000 and Star Connections earns a profit of $12,000.Is there an incentive for any one firm to increase its advertising budget?

An oligopolistic industry is characterized by all of the following except

The four-firm concentration ratio in the breakfast cereal industry is 80 percent.How does the five competitive forces model provide better insight into the degree of competition in the breakfast cereal industry than just observing the concentration ratio?

Article Summary In June 2015,Fiat Chrysler outsold Ford in terms of sales to individual consumers at dealerships,with one reason being the higher incentives offered by Fiat Chrysler.According to Autodata Corp. ,Fiat Chrysler spent an average of $3,382 in incentives on each vehicle sold,compared to $2,595 by Ford.For the first six months of 2015,General Motors spent an average of $3,427 on discounts,lease incentives,and rebates,compared to $3,277 for Fiat Chrysler and $2,736 for Ford.According to the National Auto Dealers Association,the industry is on track to sell 17.2 million domestic automobiles in 2015,which would be the second-best year for auto sales for American car companies. -Refer to the Article Summary.What happens to the profit a car company makes on each car sold if it offers incentives such as discounts,cash rebates,or lease incentives to customers? How might a car company decide which of these strategies to use?

A patent is a government-imposed entry barrier because

In many business situations one firm will act first,and then other firms will respond.To help analyze these types of situations economists use

Assume that the four-firm concentration ratio in an industry is 85 percent.Which of the following statements uses one of the five competitive forces to argue that this industry may be more competitive than its concentration ratio suggests?

All of the following are characteristics of game theory except

As a measure of competition in an industry,concentration ratios have several flaws.One of these flaws is that concentration ratios

Why do economists refer to the pricing strategies of oligopoly firms as a prisoner's dilemma game?

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?

Netflix (N)was one of the first companies to offer streaming video services and is still considered a leader in the industry.Spotify (S)offers a music streaming service and is considering entering the video streaming business.At this point,Netflix has to decide whether or not to lower its subscription price in order to deter Spotify's entry into the market.Figure 14-5 shows the decision tree for the Netflix-Spotify entry game. -Refer to Figure 14-5.Does it make sense for Netflix to lower its price in order to deter Spotify's entry into the streaming video market?

On November 7,1996,the Distilled Spirits Council of the United States decided to end its voluntary ban on television and radio liquor advertisement.The ban on hard liquor advertising had been in effect since 1936 for radio and 1948 for television.Did the lifting of this ban likely increase or decrease the profits of hard liquor companies? Briefly explain.

The Brooks Appliance Store and the Lefingwell Appliance Store (both are located in the same city)each sell an identical washer-dryer pair.The owner of each store considered offering the washer-dryer pair for $700,but decided on a price of $500.If this is a Nash equilibrium we can conclude that

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

The larger the number of firms in an industry

Which of the following is not a reason why government officials are willing to impose entry barriers?

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

The Organization of Petroleum Exporting Countries (OPEC)controls about 75 percent of the world's proven oil reserves.Economists refer to OPEC as a cartel because