Exam 14: Oligopoly: Firms in Less Competitive Markets

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

Marginal revenue for an oligopolist is

Which of the following is not a shortcoming of the concentration ratio as a measure of the extent of competition in an industry?

A four-firm concentration ratio measures

Oligopoly differs from perfect competition and monopolistic competition in that

Which of the following statements regarding concentration ratios is most accurate?

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?

If economies of scale are relatively unimportant in an industry, the typical firm's long-run average total cost curve will reach a minimum at a level of output that is a ________ fraction of total industry sales.The industry will be ________.

Table 14-8 Two rival oligopolists in the coffee industry, Wide Awake and Zuma, 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?

Of the following industries, which has the highest four-firm concentration ratio?

In the 1930s and 1940s, the Technicolor company was able to leverage its bargaining power over the movie industry because Technicolor was the sole producer of cameras and films needed to produce color films.

Figure 14-4 Rainbow Writer (RW)is a small online company selling a highly rated software package for engraving words onto objects produced by 3D printers. The firm currently earns a profit of $2 million per year selling its package exclusively on its Website. Odeon, the producer of the most popular 3D printers has expressed interest in bundling Rainbow Writer's product with its printers. Odeon expects that bundling would further boost its sales and allow it to sell its printers at a higher price, thus raising its profits beyond its current profit of $12 million. Figure 14.4 shows the decision tree for the Rainbow Writer-Odeon bargaining game. -Refer to Figure 14-4.How will Rainbow Writer respond to Odeon's two possible offers?

In 2017, the Educational Testing Service (ETS)charged $54.50 to take the Scholastic Aptitude Test (SAT)but $205 to take the Graduate Record Exam (GRE).One reason for this difference in price is

Table 14-5 Martin and Lewis each run one of the two bingo parlors in Schenectady. Both consider offering free rides to and from the parlors. Table 14-5 shows the payoff matrix containing the expected weekly profits for each bingo parlor. -Refer to Table 14-5.Does Martin have a dominant strategy? If yes, what is it?

Table 14-2 Table 14-2 shows the payoff matrix for Walmart and Target from every combination of pricing strategies for the popular PlayStation 4. At the start of the game each firm charges a low price and each earns a profit of $7,000. -Refer to Table 14-2.Is the current strategy in which each firm charges the low price and earns a profit of $7,000 a Nash equilibrium? If not, why and what is the Nash equilibrium?

A set of actions that a firm takes to achieve a goal, such as maximizing profits, is called

Table 14-3 Suppose OPEC has only two producers, Saudi Arabia and Ecuador. Saudi Arabia has far more oil reserves and is the lower-cost producer compared to Ecuador. The payoff matrix in Table 14-3 shows the profits earned per day by each country. "Low output" corresponds to producing the OPEC assigned quota and "high output" corresponds to producing the maximum capacity beyond the assigned quota. -Refer to Table 14-3.Is there a dominant strategy for Saudi Arabia and, if so, what is it?

Figure 14-5 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 in 2015 considered entering the video streaming business. At that point, Netflix had to decide whether or not to lower its subscription price in order to deter Spotify's entry into the market. Figure 14-5 shows a hypothetical decision tree for the Netflix-Spotify entry game. -Refer to Figure 14-5.If Netflix lowers its price, will this deter Spotify from setting up a streaming video service?

The prisoner's dilemma is used to analyze business situations in which one firm acts first and then other firms respond.

Two firms would sometimes be better off if they got together and agreed to charge a high price, rather than to compete and risk having to charge a lower, competitive price.What is the greatest deterrent to this strategy?