Exam 15: Oligopoly and Game Theory

Another possible source of why cartels break down is the growth potential of the industry. Although industries with a lot of potential are more willing to invest in the time to form a collusive agreement, such growth potential also deters them from making this investment. Why would that be?

Barriers to entry are factors that:

There was a dramatic fall in the price of oil in:

In game theory, a dominant strategy ______ exists.

Which of the following explains why it is typically easier to maintain a cartel in a natural resource than in a manufactured good?

Most cartels are:

Which of the following makes a cartel short-lived?

Use the following to answer questions: Table: Three-Country Oil Production Total Market Output Market Price 600 90 800 80 1,000 70 1,200 60 1,400 50 1,600 40 1,800 30 -(Table: Three-Country Oil Production) Refer to the table. Suppose that three countries are engaged in oil production. For simplicity, assume zero costs so that revenue equals profit. Assume that Country A cheats on the cartel agreement by producing 200 more barrels than the other two countries. What is the new market price when Country A cheats on the agreement?

When does "tactic collusion" apply?

If anything, a cartel is likely to ________ and ________ power over time.

Use the following to answer questions: Table: Mary, Silvia Payoff Table Silvia Cooperate Cheat Mary Cooperate 20,20 10,40 Cheat 40,10 15,15 -(Table: Mary, Silvia Payoff Table) Refer to the table. Mary and Silvia are producers. If Silvia cooperates, what is Mary's dominant strategy?

What are some reasons why cartels could fail?

People sometimes point to similar gas prices at competing gas stations as evidence of collusion when they could just be selling at market price. If this is not good evidence of collusion, what is?

Use the following to answer questions: Table: Christie' and Sotheby's Sotheby's Strategies High Commission Low Commission Christie's High Commission \4 million, \4 million \2 million, \6 million Strategies Low Commission \6 million, \2 million \3 million, \3 million -(Table: Christie' and Sotheby's) Each cell of this table presents the revenues earned by the auction houses, Christie's and Sotheby's. Revenues are based on the type of commission each firm charges its clients, as well as what commission the other charges. Christie's revenues are listed first in each cell, then Sotheby's. Christie's dominant strategy is ______ commission and Sotheby's dominant strategy is ______ commission.

Which of the following statements is TRUE with respect to economies of scale? I. It is cheaper for 500 manufacturers to make 30,000 cars each. II. It is cheaper for five manufacturers to make 3,000,000 cars each. III. Bigger firms mean fewer firms.

Use the following to answer questions: Table: Market for Oil Suppose that oil is produced by 10 countries, each of which produces 10 million barrels of oil a day (MBD) for a total 100 MBD. The world price of oil at this quantity is $36 per barrel so each country earns $360 million a day. World Price (per barrel) World Quantity (MBD) \ 36 100 37.50 98 47.50 82 50 80 -(Table: Market for Oil) Refer to the table. Suppose that these countries form a cartel and each country produces 8 MBD. If nine of the cartel members cheat and produce 10 MBD while one country keeps its promise and maintains production at 8 MBD, each cheater would earn revenue of:

Cartels may tend to collapse and lose their power because of new entrants.

When all members of a cartel cheat, the cartel:

In the United States, the government has antitrust laws to prevent firms from acting like cartels, although the government has created cartels in milk and other agricultural products.

A dominant strategy is a strategy that: