Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
9th Edition
ISBN: 9781259290619
Author: Michael Baye, Jeff Prince
Publisher: McGraw-Hill Education
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Chapter 13, Problem 12PAA
To determine
To know: The reason for lawsuit against AA and its prevalence at trail.
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This is a Microeconomics problem. Two firms A and B operating in the same market must choose between a collude price and a cheat price.
Answer the following questions in order.
(a) Does Firm A have a dominant strategy? Explain your answer.
(b) Does Firm B have a dominant strategy? Explain your answer.
(c) Is there an equilibrium solution to the above game?
(d) Is this equilibrium solution to the game the most "ideal" outcome for the players? Explain clearly why or why not.
What is the difference between collusion and competition?
Group of answer choices
1-Competition is when firms operate independently. Collusion is when firms in the oligopoly market structure try to invite new entrants into the market to make it more competitive.
2-Collusion is when firms act together in ways to reduce output, keep prices high, and divide up markets. Competition is when firms operate independently.
3-Competition firms follow the price changes and product changes of the dominant firm in an oligopolistic market. Collusion is when firms operate independently.
4-Collusion is when firms follow the price changes and product changes of the dominant firm in an oligopolistic market.Competition is when firms operate independently.
Question 39
Modeling a cartel as a prisoners’ dilemma game shows that ____________________ may be rational even if ____________________.
Group of answer choices
non-cooperation; cooperation benefits everyone
cooperation; cooperation benefits everyone
cooperation; cooperation damages everyone
non-cooperation; cooperation damages everyone
Chapter 13 Solutions
Managerial Economics & Business Strategy (Mcgraw-hill Series Economics)
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Similar questions
- Give two examples of a prisoner's dilemma that involves more than two playersarrow_forwardWhich of the following is true of a prisoner's dilemma? Players will be best off if they cooperate, but they have an incentive to follow their individual self-interest. Players will be best off if they cooperate, and they will have enough incentive to do so. Players will be best off if they follow their individual self-interest, but they have an incentive to cooperate. Players will have no incentive to take any particular action.arrow_forwardAntitrust laws Cooperation among oligopolies runs counter to the public interest because it leads to underproduction and high prices. In an effort to bring resource allocation closer to the social optimum, public officials attempt to force oligopolies to compete instead of cooperating. Consider the following scenario: Suppose that the presidents of two auto manufacturing companies exchange text messages in which they discuss jointly raising prices on their new lines of hybrid SUVs. This illegal communication would violate which of the following laws? The Clayton Act of 1914 The Celler–Kefauver Act of 1950 The Sherman Antitrust Act of 1890 The Robinson–Patman Act of 1936arrow_forward
- Present an example of a prisoner’s dilemma in your own life. Describe the “cooperative” action for each player that involves trusting the other in some sense. Explain why mutual cooperation will lead to an outcome that is preferred to mutual defection. Describe why there is an incentive for each to defect, or not cooperate, or not be trustworthy. Discuss what might be done to promote mutual cooperation, or what is done.arrow_forwardAs the number of firms in an oligopoly industry decreases, the market moves closer to a __________ market. Over the last 60 or so years, the percentage of women with paid jobs has increased significantly. Is this increase in female employment associated with an increase in the demand for labor, or is it associated with an increase in the supply of labor? How does increased immigration affect the labor market? How would the equilibrium wage and the equilibrium quantity of labor be affected?arrow_forwardSuppose two brothers own identical skydiving companies but have decided to experiment with different pricing structures. The older brother’s company, Air Adventures, charges everyone the same price, while the younger brother’s company, Sky Warriors, sets its prices using a twotiered, price-discrimination model. Assuming that both companies face the same market demand curves, marginal costs, and costs of production, and wield significant market power for their service area, which of the following is most likely to occur? a. Air Adventures will generate a similar net revenue to Sky Warriors. b. Sky Warriors will generate a higher net revenue than Air Adventures. c. Sky Warriors will generate a lower net revenue than Air Adventures. d. Air Adventures will generate a higher net revenue than Sky Warriors. e. Sky Warriors will eventually switch to the Air Adventures model.arrow_forward
- The U.K. Office of Fair Trading has recently unveiled a plan that will offer immunity from prosecution to firms who blow the whistle on their co-cartel conspirators. In the United States, this tactic has proven extremely successful: Since its introduction in 1993, the total amount of fines for anticompetitive behavior has increased twentyfold. Show how the tactic initiated by the U.S. Department of Justice, soon to be followed by the U.K. Office of Fair Trading, changes the rules of the game played between firms in a secret cartel.arrow_forwardA strategy that a player will pursue regardless of any other player's decision is called _________. Question 10 options: game theory. collusion. prisoner's dilemma. dominant strategy.arrow_forward15-1 Mr. and Mrs. Ward typically vote oppositely in elections and so their votes “cancel each other out.” They each gain two units of utility from a vote for their positions (and lose two units of utility from a vote against their positions). However, the bother of actually voting costs each one unit of utility. Diagram a game in which they choose whether to vote or not to vote.arrow_forward
- Two firms are playing an infinitely-repeated prisoner's dilemma pricing game of the following form: Firm 1 Firm 2 Low price High Price Low price 4, 4 20, 0 High price 0, 20 12,12 Consider the decision to cheat ONLY ONCE for a firm in this game against the opponent that is a Tit-for-Tat player. Cheating firm gets an extra in payoffs for the first round, but has to face $0 payoffs for the second round in order to be able to bring the opponent to the collusive outcome again in the third round. What is the minimum rate of return (r) that would make defecting only once? Show your calculations.arrow_forwardSelect the term that best describes each definition listed in the following table. Definition Nash Equilibrium Dominant Strategy Collusion Tit-for-tat Strategy Payoff Matrix Prisoners' Dilemma Game A player's best choice, if it exists, regardless of his or her opponent's strategy A strategy in which a player cooperates until the other player defects and then defects until the other player cooperates again A set of strategies (one for each player) in which each player's strategy is the best option for that player, given the chosen strategy of the player's opponents A visual representation of a game showing all possible strategies for each player and all potential outcomes and payoffsarrow_forwardSelect the term that best describes each definition listed in the following table. Definition Nash Equilibrium Dominant Strategy Collusion Tit-for-tat Strategy Payoff Matrix Prisoners' Dilemma Game A case in which individually rational behavior leads to a jointly inefficient outcome A player's best choice, if it exists, regardless of his or her opponent's strategy A strategy in which a player cooperates until the other player defects and then defects until the other player cooperates again The event that occurs when agents in a game form an agreement about which strategies to implementarrow_forward
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