[23]is accounted for by the Differential Collusion Hypothesis.Increases in concentration increase price-cost margins by enhancing cooperation among firms. ThisA.TrueВ.False[24]incentive for a firm to secretly cut its price (below an agreed upon price) increases.Adopting a “meet the competition" clause makes it more difficult to sustain cooperation, since theA.TrueВ.False

[23] Increases in concentration increase price-cost margins by enhancing cooperation among firms. This is accounted for by the Differential Collusion Hypothesis. A. True В. False [24] Adopting a “meet the competition" clause makes it more difficult to sustain cooperation, since the incentive for a firm to secretly cut its price (below an agreed upon price) increases. A. True В. False

[23] Increases in concentration increase price-cost margins by enhancing cooperation among firms. This is accounted for by the Differential Collusion Hypothesis. A. True В. False [24] Adopting a “meet the competition" clause makes it more difficult to sustain cooperation, since the incentive for a firm to secretly cut its price (below an agreed upon price) increases. A. True В. False

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter12: Price And Output Determination: Oligopoly

Section: Chapter Questions

Problem 2E

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Price competition between firms, from the firms’ perspective, can be similar to the prisoners’ dilemma. The best outcome for all firms would be for all to charge a high price. However, if the other firms charge a high price, any individual firm has incentives to charge a low price and steal the market. Additionally, if any other firm chooses a low price, each firm should charge a low price too so that it doesn’t get priced out of the market. Explain how price-matching (firms announcing a policy where they match the lowest price a customer can find or will honor a competitor’s coupon) can help firms avoid the Nash equilibrium in which they all charge a low price. Is it misleading for a firm to advertise price-matching as being beneficial to consumers? (Hint: What outcomes of the game are ruled out by the price-matching policy? How does ruling out these outcomes change the game and the decision the firms face?)
Price competition between firms, from the firms’ perspective, can be similar to the prisoners’ dilemma. The best outcome for all firms would be for all to charge a high price. However, if the other firms charge a high price, any individual firm has incentives to charge a low price and steal the market. Additionally, if any other firm chooses a low price, each firm should charge a low price too so that it doesn’t get priced out of the market. Explain how price-matching (firms announcing a policy where they match the lowest price a customer can find or will honor a competitor’s coupon) can help firms avoid the Nash equilibrium in which they all charge a low price. Is it misleading for a firm to advertise price-matching as being beneficial to consumers? What outcomes of the game are ruled out by the price-matching policy? How does ruling out these outcomes change the game and the decision the firms face?
There are two firms A and B. Firms compete in a Cournot Duopoly in Karhide. They set quantities qA and qB. Inverse demand is P(qA + qB) = 18 − qA − qB and costs are C(q) = 3 ∗ q for both firms. Firm B is a domestic firm (in Karhide,) and firm A is a foreign firm (from Orgoreyn.) The government of Karhide engages in a strategic trade intervention by giving firm B a per unit subsidy of s. (That is, when firm B produces and sells qB units, firm B receives a payment of s ∗ qB from the government.) (d) Solve for the equilibrium outputs (q∗A, q∗b).(e) Solve for the equilibrium price.(f) Solve for firm B profits.
Suppose that two Japanese companies, Hitachi and Toshiba, are the sole producers (i.e., duopolists) of a microprocessor chip used in a number of different brands of personal computers. Assume that total demand for the chips is fixed and that each firm charges the same price for the chips. Each firm’s market share and profits are a function of the magnitude of the promotional campaign used to promote its version of the chip. Also assume that only two strategies are available to each firm: a limited promotional campaign (budget) and an extensive promotional campaign (budget). If the two firms engage in a limited promotional campaign, each firm will earn a quarterly profit of $14 million. If the two firms undertake an extensive promotional campaign, each firm will earn a quarterly profit of $11 million. With this strategy combination, market share and total sales will be the same as for a limited promotional campaign, but promotional costs will be higher and hence profits will be lower.…
There are two firms A and B. Firms compete in a Cournot Duopoly in Karhide. They set quantities qA and qB. Inverse demand isP(qA +qB) = 18−qA −qB and costs are C(q) = 3∗q for both firms. Firm B is a domestic firm (in Karhide,) and firm A is a foreign firm (from Orgoreyn.) The government of Karhide engages in a strategic trade intervention by giving firm B a per unit subsidy of s. (That is, when firm B produces and sells qB units, firm B receives a payment of s ∗ qB from the government.) We begin by examining the model with an unspecified s ≥ 0. A)Find profit functions for both firms. B)Use first order conditions to find each firm’s best response function.
A homogenous-good duopoly faces an inverse market demand function of p = 150 − Q. Assume that both firms face the same constant marginal cost, MC1 = MC2 = 30. Calculate the output of each firm, the market output, and the market price in a Nash-Cournot equilibrium Re-solve part (a) assuming that the marginal cost of firm 1 falls to MC1 =20 Explain what will happen to each firm’s output, the market output, and the market price if the two firms can collude (e.g., form a cartel)
Determine whether each of the following scenarios best reflects features of Sweezy, Cournot, Stackelberg, or Bertrand duopoly: a. Neither manager expects her own output decision to impact the other manager’s output decision. b. Each manager charges a price that is a best response to the price charged by the rival. c. The manager of one firm gets to observe the output of the rival firm before making its own output decision. d. The managers perceive that rivals will match price reductions but not price increases.
Consider a Duopoly model, in which two firms decide a quantity sequentially. For the convenience, let's say Firm 1 is a dominant firm and Firm 2 is a follower. The market demand is given by P=110 - 5Q, where Q is the total output (i.e., Q=Q1+Q2). Each firm has an identical cost function, TCi=7Qi, i=1, 2. Each firm maximizes its profit by choosing the quantity. In this Stackelberg equilibrium, Firm 1 will sell __________ units.
Consider a Duopoly model, in which two firms decide a quantity sequentially. For the convenience, let's say Firm 1 is a dominant firm and Firm 2 is a follower. The market demand is given by P=110 - 5Q, where Q is the total output (i.e., Q=Q1+Q2). Each firm has an identical cost function, TCi=7Qi, i=1, 2. Each firm maximizes its profit by choosing the quantity. In this Stackelberg equilibrium, Firm 1 will sell how many units.
Cournot model: linear demand; identical firms. Q(P)=D-P TC(C)=cQ, where D>c a) Suppose that there are 2 firms. They can either choose to produce the Cournot quantity, or choose to produce one half of the monopoly quantity. Write down the 2X2 “payoff matrix” for this game. b) If D= 6 and c = 2, suppose that the game is repeated infinitely often with a discount factor of beta. For what values of beta will it be possible to sustain collusion? c) Now consider the same game with 3 firms. Compute the profits in the static Cournot- Nash equilibrium, and the profits when the 3 firms each produce one third of the monopoly quantity. For what values of beta will it be possible to sustain collusion in this case?
Consider an oligopolistic industry with N competing firms. Suppose that these firms have no fixed costs and that they all have the same marginal costs. Each firm must choose what quantity to produce independently of each other, and all firms must choose at the same time. If we decrease the number of firms in this industry (to, for example N−1), the market price Group of answer choices A. increases B. decreases C. remains unchanged D. becomes nil E. none of the above
LuLu Restaurant (LR) and Lucy Café (LC) have an implicit agreement to keep prices high so that both can earn $30,000 profit a year. Below is their complete payoff matrix in terms of thousands of dollars of profit per year and strategic actions a and b. LR’s payoffs are the left and LC’s are on the right. However, in 2014 new owner/managers have taken over both LR and LC and have to decide whether to abide by the implicit agreement or to cheat. LC a b LR a 30, 30 25,32 b 32, 25 26, 26 What strategy will each firm choose and what will be its profit? Is this a Nash equilibrium? Why or why not? Would it be worth it for these new owners/managers to find reach an accommodation and go back to the old implicit agreement? Would this be a Nash equilibrium? Why or why not? Is this game a prisoner’s dilemma? Why or why not?