Exam 25: Oligopoly

So long as production in the oligopoly still occurs,recurring fixed costs have no impact on output under Cournot competition but do have an impact under Bertrand competition.

If Bertrand price competitors incur recurring fixed costs,it will still be a Nash equilibrium for price to equal marginal cost.

Suppose a market is currently served by an incumbent firm.If a potential entrant can enter prior to the incumbent firm announcing its output (or price),the entrant will enter the market and force the incumbent to compete.

Firms in a cartel have an incentive to cheat on the cartel agreement because they suspect the other firms are cheating as well.

We showed that,when demand is linear and marginal cost is constant,the Stackelberg leader produces the monopoly output while the Stackelberg follower produces half the monopoly output.If the leader and follower now enter a simultaneous quantity setting game,why can't the leader maintain the same equilibrium?

Two firms in an oligopoly can always do better if one firm buys the other.

Suppose that a market is currently served by a single firm protected by high entry costs from any potential competition.Then imagine fixed entry costs gradually falling in a model where any competition will be with quantity as the strategic variable.Describe how you would expect output price to evolve as entry costs fall.

If two firms in an oligopoly produce undifferentiated products and face identical constant marginal costs,then,absent any implicit or explicit collusion,they will price at marginal cost regardless of whether they move sequentially or simultaneously -- assuming price is the strategic variable.

In the presence of negative pollution externalities,it is more efficient to have Cournot competitors than Bertrand competitors.

Suppose a single firm has constant marginal cost and faced the demand curve a.Illustrate in this graph how a monopolist who cannot price discriminate would price this good.What is the monopoly price and quantity? b.Suppose two firms with the same marginal cost as the monopolist operated in this market instead.Suppose quantity is the strategic variable and the two firms simultaneously choose quantity.On a graph with firm 1's output on the horizontal and firm 2's output on the vertical,illustrate firm 2's best response function with numerical labels for each intercept. c.Add firm 1's best response function and determine the Nash equilibrium quantities. d.What's the equilibrium price resulting from the quantities you determined in (c)? e.What would be the equilibrium price if the strategic variable for the firms were price instead?

Explain how two Bertrand price competitors can price above marginal cost in an infinitely repeated game setting.

Explain why firms in a cartel might lobby for government regulation.

Just because a firm can deter entry by a competitor does not mean it will deter entry.

If two simultaneous move Bertrand price competitors have different constant marginal costs,then any price between their marginal costs could be a Nash equilibrium price.

Suppose two Bertrand price competitors have different constant marginal costs.In any simultaneous move Nash equilibrium,only the lower cost firm will produce.

In a 2-firm oligopoly,if you can choose to either be a simultaneous move Cournot competitor or a Stackelberg leader,you will always choose to be a Stackelberg leader.

The more firms there are in an oligopoly in which the strategic firm variable is quantity,the more price converges to marginal cost.

Recurring fixed costs may lead to only one firm producing in a Cournot oligopoly model.

Suppose a market is currently served by an incumbent firm.If a potential entrant can enter prior to the incumbent firm announcing its output (or price),the incumbent cannot deter entry through its actions.