Limit Pricing Revisited: Consider the limit pricing-entry deterrence gamedescribed in Section 16.2 and imagine that second-period profits are dis-counted using a discount factor,8 < 1. Furthermore consider the strategies inwhich each type of player 1 chooses its monopoly quantity in the first periodso that q =separating perfect Bayesian equilibrium?IL%3D2 and g = 1.5. For which values of & will this be part of aIL

In signaling games, where agents with distinct features take alternative actions, a separating…

Limit Pricing Revisited: Consider the limit pricing-entry deterrence game described in Section 16.2 and imagine that second-period profits are dis- counted using a discount factor & ≤ 1. Furthermore consider the strategies in which each type of player 1 chooses its monopoly quantity in the first period IL = so that q = 2 and q 1.5. For which values of 8 will this be part of a separating perfect Bayesian equilibrium?

Limit Pricing Revisited: Consider the limit pricing-entry deterrence game described in Section 16.2 and imagine that second-period profits are dis- counted using a discount factor & ≤ 1. Furthermore consider the strategies in which each type of player 1 chooses its monopoly quantity in the first period IL = so that q = 2 and q 1.5. For which values of 8 will this be part of a separating perfect Bayesian equilibrium?

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 1E

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True/False 1. In a principal-agent relationship between owner and manager with hidden e§ort, the owner can design a wage scheme that insures the optimal Örst best e§ort by the manager regardless of the risk aversion of the manager. Justify your answer. 2. Consider a monopoly that faces an inverse demand curve and has a linear cost function. The monopoly would be indi§erent when maximizing proÖts between either choosing quantities or choosing prices. 3. A multiproduct Örm that as monopoly power over several products sets lower prices than separate Örms (each controlling a single product) when the products are substitutes or when there are economies of scope. 4. In the dominant Örm model (‡ la Hotelling) an increase in the marginal cost of the dominant Örm (with constant marginal costs) implies that proÖts necessarily decrease. 5. Suppose that an industry has 10 Örms where the market shares are ordered from the most to the least dominant Örm f0:5; 0:37; 0:05; 0:03; 0:02; 0:01;…
(Market Entry Deterrence): NSG is considering entry into the local phone market inthe Bay Area. The incumbent S&P, predicts that a price war will result if NSG enters. If NSG staysout, S&P earns monopoly profits valued at $10 million (net present value, or NPV of profits),while NSG earns zero. If NSG enters, it must incur irreversible entry costs of $2 million. If there isa price war, each firm earns $1 million (NPV). S&P always has the option of accommodatingentry (i.e., not starting a price war). In such a case, both firms earn $4 million (NPV). Supposethat the timing is such that NSG first has to choose whether or not to enter the market. ThenS&P decides whether to “accommodate entry” or “engage in a price war.”a. Model this as a dynamic game and draw the game tree.b. What is the subgame perfect Nash equilibrium outcome to this sequential game?
Consider the optimal pricing policy of a monopolist selling information goods. There are three types of consumers, and there is one consumer of each type. The monopolist knows that there arethree types of consumers and the valuations of each type (i.e. the tables below), but cannot tell to which type a consumer belongs (so that personalised pricing is impossible). As the products are information goods, marginal costs are zero, and fixed costs are already sunk. Assume throughout that, when a player is indifferent, she will choose the higher-priced version.The monopolist can offer up to three versions (versions X, Y and Z) of the information good. The three types of consumers have valuations for the different versions as given in the following table: Version x Version Y Version z 1 consumer: 70 120 130 2 consumer: 140 140 200 3 consumer: 170 180 250 (I.e.: If the type 1 consumer is charged a price of 60 for version X and a price of 100 for version Y, the consumer will…
Consider the optimal pricing policy of a monopolist selling information goods. There are three types of consumers, and there is one consumer of each type. The monopolist knows that there arethree types of consumers and the valuations of each type (i.e. the tables below), but cannot tell to which type a consumer belongs (so that personalised pricing is impossible). As the products are information goods, marginal costs are zero, and fixed costs are already sunk. Assume throughout that, when a player is indifferent, she will choose the higher-priced bundle. There are three basic goods (products A, B and C), and the monopolist can choose which bundles of goods they want to offer, and the price of these bundles. The three types of consumers have valuations for the different products as given in the following table: (I.e.: If consumers are charged a price of 5 for product A, the type 1 consumer would buy this product as she achieves a surplus of 10 – 5 = 5. If, in addition, the consumers…
Consider any market that has a demand curve given by: Qd = 125 - 0.4P. Being the total quantity demanded in the market, given the quantity in millions of units and the market price, calculated in monetary units. Imagine that there are 2 Cournot oligopolists operating in this market that have Cmg = CVme = 2. About this market, the question is: a) What is the reaction curvature of the oligopolists? b) What will be the production of each of the companies? c) What is the sale price for oligopolists?
Suppose both a monopolist and a perfectly competitive firm are producing in theirrespective markets at a point where marginal cost is $8 and marginal revenue is $10. Whatshould the profit-maximizing firms do? Group of answer choices Both the monopolist and the perfectly competitive firm should increase output until MC= MR. The monopolist should keep producing at this level but the perfectly competitive firmshould decrease output until MC = MR. The monopolist should increase output but the perfectly competitive firm should shutdown. Both the monopolist and the perfectly competitive firm should decrease output until MC= MR.
Question 1.Assume there are only two art auction companies who account for 100% of all the sales of 19thCentury impressionist master work paintings in the world. Assume that each company buys thiskind of painting and then resells the paintings at monthly auctions. Ignoring the question of anylaws that might apply, describe what economic arrangement would maximize the twocompanies’ total profits? Show with supply and demand curves what profit they would makefrom this arrangement and what societal welfare loss, if any, results from it.
In Salop’s model of entry deterrence, the unconstrained monopoly earns profits (in present value terms) equal to some amount v0. Suppose v0 = 100. If entry were to occur, the two firms would share the market, each earning v1.(A) Why do we expect 2 v1 to be less than 100 ? (B) The incumbent monopoly can prevent entry by expending a fixed and irreversible amount C that the entrant must match. What conditions on the size of C will both successfully prevent entry, and equally importantly, result in greater profit for the incumbent than by allowing entry?
Isabella runs an IT solutions business for her college peers and has only one competitor, Franco.Isabella and Franco have decided to collude andprovide monopoly-level output. Given that theyare both freshmen and intend to run their businesses for the next three years, is this agreementsustainable? Would your answer change if Francoknew he planned to transfer to another collegenext year?
Consider any market that has a demand curve given by: Qd = 240 - 2P. Where Qd is the total quantity demanded in the market, given in millions of units and P is the market price, calculated in monetary units. Imagine that there are 2 Cournot oligopolists operating in this market with Cmg = CVme = 15 and fixed monthly costs equal to 1,400. About this market, ask yourself: a) What is the profit of each of the oligopolists? b) Imagine that one of the companies managed to implement a process innovation capable of halving its Cmg and CVme, so that they would go from 15 to 7.5. This investment implies an additional monthly expense of $1,800. Discuss the statement: "If this situation occurs, the innovative company will not implement variable cost reduction, as the quantity supplied in the market will increase very little; prices will remain very close to what they are today and its profits will not increase"
Comment An HHI index of less than 1500 is considered as an competative market place , and If HHI index value is in range of 1500 to 2500 is considered as moderetly Concentrated.if the valuegoes above 2500 then the market place is highly Concentrated. So, In our All three years Value of HHI is above 2500 that shows in all three years that shows the there is very less competation in market or existence of very few players in all three years Are your conclusions in the HHI consistent with the five firm concentration in all cases? Give two reasons to support your answer
Assume a monopolist produces rum and knows there are two groups of rum consumers, 1 and 2, with different price elasticities. Group 1 is highly price elastic with E1=-10; Group 2 exhibits a lower price elasticity of E2=-2.5. Assume the company can separate these two groups (e.g., by handing out special ID cards) and can charge two different prices. If P2=$14, how much can it charge to Group 1?