Deck 7: Collusion

Question 1

Firms with homogeneous resources and capabilities that cooperate to reduce competition below a perfect competition level can generate economic profits,but in doing so reduce social welfare in a phenomenon called ________ loss.

A)abnormal
B)ethical
C)collusion
D)dead weight

Answer 1

D

Question 2

Explicit collusion is legal in most developed economies.

Answer 2

False

Question 3

The ability of a group of firms to work together to reduce competition in their market or industry is called ________.

A)collaboration
B)fragmentation
C)collusion
D)differentiation

Answer 3

C

Question 4

________ collusion exists when firms in an industry directly negotiate agreements about how to reduce competition.

A)Explicit
B)Strategic
C)Intra-industry
D)Tacit

Question 5

Collusion can take one of two forms,________ collusion or ________ collusion.

A)strategic; non-strategic
B)explicit; tacit
C)market; product
D)intra-industry; inter-industry

Question 6

Which of the following is NOT an instance of collusion?.

A)General Motors and Ford Motor Company forming a strategic alliance to make electric cars.
B)Members of OPEC agreeing to reduce oil shipments in 1973.
C)Coca-Cola's decision to focus on the Western European market and Pepsi's decision to focus on the Russian market.
D)General Electric's decision to focus on large electric generation turbines and Westinghouse's decision to focus on small electric generation turbines.

Question 7

Explicit collusion exists when firms in an industry directly negotiate agreements about how to reduce competition.

Question 8

Tacit collusion requires firms to signal their willingness to cooperate to reduce competition directly.

Question 9

Tacit collusion can be legal.

Question 10

Collusion is the ability of a group of firms to work together to increase competition in their market or industry.

Question 11

The economic profits generated by generic business strategies-cost leadership,product differentiation,and flexibility-can be thought of as ________ profits.

A)efficiency
B)normal
C)abnormal
D)sustainable

Question 12

Tacit collusion exists when firms cooperate in reducing competition,but engage in no face to face negotiations to do so.

Question 13

General Electric's decision to focus on large electric generation turbines and Westinghouse's decision to focus on small electric generation turbines is an example of ________.

A)differentiation
B)collaboration
C)segmentation
D)collusion

Question 14

________ collusion is illegal in most developed countries.

A)Any
B)Explicit
C)Tacit
D)Strategic

Question 15

________ collusion can be legal.

A)Tacit
B)Explicit
C)Strategic
D)Any

Question 16

________ collusion exists when firms cooperate in reducing competition,but engage in no face to face negotiations to do so.

A)Explicit
B)Strategic
C)Intra-industry
D)Tacit

Question 17

The frequent surreptitious meetings of Gamma Food Products' four largest competitors,observed by Polly Kundig,suggests that they are engaged in ________.

A)strategic planning
B)explicit collusion
C)industry promotion
D)market expansion

Question 18

Coca-Cola's decision to focus on the Western European market and Pepsi's decision to focus on the Russian market is an example of collusion.

Question 19

The economic profits generated by the strategies of cost leadership,product differentiation,and flexibility can be thought of as efficiency profits.

Question 20

Tacit collusion is always illegal.

Question 21

Which of the following is NOT a way to create economic profits via collusion?

A)Colluding to increase the bargaining power of buyers.
B)Colluding to reduce the threat of new competitors.
C)Colluding to reduce the threat of current competitors.
D)Colluding to reduce supplier leverage threats.

Question 22

In examining cheating in collusions,________ examined the performance consequences if colluding firms cheat by adjusting the quantity of their output and let market forces determine prices.

A)Bertrand
B)Cournot
C)Edgeworth
D)Stackelberg

Question 23

Firms can collude to reduce the threats from new competitors by working together to decrease the barriers to entry into an industry.

Question 24

Which of the following is NOT a way by which firms can collude to reduce the threat of new competitors?

A)Working together to increase the barriers to entry.
B)Developing common technology standards that act as barriers to entry.
C)Moving away from using product differentiation as a barrier to entry.
D)Joint lobbying to increase the cost of entry.

Question 25

It is well established in economic theory that imperfectly competitive markets are consistent with social welfare.

Question 26

Whether explicit or implicit,firms that engage in collusion face a number of fundamental ethical challenges.

Question 27

What is collusion?

Question 28

Generally,long-run profits for firms that cheat on purely collusive agreements fall ________ the perfect competition,zero-economic-profit solution and the perfect competition,shared-monopoly-profit solution.

A)clearly outside of
B)at one side of
C)somewhere outside of
D)somewhere between

Question 29

Firms that consciously make price and output decisions in order to reduce competition may be engaging in what the courts call ________.

A)conspicuous consumption
B)conscious parallelism
C)predatory action
D)coalitionary action

Question 30

Omega,Inc.signals that if parties cheat on collusive agreements,it will decrease prices more or increase output more than would have otherwise been the case.Omega,Inc.is sending a(n)________ signal.

A)explicit
B)tacit
C)tough
D)soft

Question 31

Members of OPEC discovered the limits of their ability to collude in reducing the volume of oil they were willing to sell when the increased price of crude oil led a variety of companies to explore alternative sources of energy and consumers to conserve.

Question 32

Joint lobbying efforts by industry incumbents can increase the cost of entry into an industry.

Question 33

The reason that collusion is a difficult strategy to maintain over time is that while parties to these cooperative agreements often have strong incentives to cooperate,they also have strong incentives to ________ those cooperative agreements.

A)profit from
B)maintain
C)go along with
D)cheat on

Question 34

What are the two types of collusion and how are they different?

Question 35

Collusion with other firms in an industry involves increasing competition among those firms.

Question 36

According to the ________ cheating model,assuming little or no product differentiation among a small number of firms,if one firm decides to cheat on a collusive agreement by reducing its prices,others will as well and,in the long run,firms in this industry will earn no economic profits.

A)Cournot
B)Edgeworth
C)Stackelberg
D)Bertrand

Question 37

Firms can develop competing technological standards that make it very difficult for new firms to enter an industry.

Question 38

Which of the following models is NOT an important form of cheating in collusive agreements?

A)Schumpeter
B)Bertrand
C)Cournot
D)Edgeworth

Question 39

In general,firms can send one of two signals to collusion partners who may cheat on their cooperative agreements: a ________ signal or a ________ signal.

A)explicit; implicit
B)explicit; tacit
C)visual; verbal
D)tough; soft

Question 40

Instead of communicating directly,________ colluding firms send and interpret signals of intent to co-operate (or intent not to co-operate)sent by potential collusion partners.

A)tacitly
B)explicitly
C)strategically
D)operationally

Question 41

Positioning a firm's product so that it does not compete directly with the products of a colluding firm is an example of a ________ signal.

A)soft
B)tough
C)strategic
D)functional

Question 42

Industry ________ structure can create opportunities for tacit collusion.

A)physical
B)cost
C)competitive
D)social

Question 43

Ben & Jerry's decision to not enter the frozen yogurt business is an example of the ________.

A)"puppy-dog-play"
B)"fat-cat effect"
C)"top-dog strategy"
D)"lean-and-hungry look"

Question 44

Tacit collusion is more likely when firms produce and sell ________ products or services.

A)similar
B)dissimilar
C)many
D)diverse

Question 45

Firms may have incentives to cheat on cooperative agreements when maintaining a collusive agreement has high ________ costs.

A)opportunity
B)strategic
C)signaling
D)social

Question 46

In an industry where the primary basis of competition is quantity,firms may invest heavily in,say,manufacturing capacity,even if those investments do not generate positive economic profits directly.Sending this kind of a signal is called ________.

A)"puppy-dog-play"
B)"fat-cat effect"
C)"top-dog strategy"
D)"lean-and-hungry look"

Question 47

When price is likely to be the major basis of competition in an industry,firms should not make investments that send a(n)________ signal.

A)soft
B)tough
C)explicit
D)tacit

Question 48

The ability of firms to produce for inventory and to create order backlogs helps ________ tacit collusion.

A)avoid
B)ramp down
C)facilitate
D)prevent

Question 49

Which of the following is NOT a ploy used in signaling?

A)"puppy-dog-play"
B)"lap-dog effect"
C)"top-dog strategy"
D)"lean-and-hungry look"

Question 50

In general,price leaders can be thought of as ________ leaders.

A)Stackelberg
B)Cournot
C)Bertrand
D)Edgeworth

Question 51

Existence of industry ________ creates opportunities for tacit collusion.

A)flag bearers
B)price leaders
C)differentiators
D)pioneers

Question 52

________ of economic costs enhances the opportunities to implement tacit collusion.

A)Heterogeneity
B)Transparency
C)Homogeneity
D)Opacity

Question 53

A ________ is a firm that sets "acceptable" industry prices or acceptable "profit margins" in an industry.

A)price leader
B)differentiator
C)cost leader
D)flag bearer

Question 54

Which of the following is NOT an industry attribute that facilitates the development and maintenance of tacit collusion?

A)Small number of firms
B)Product homogeneity
C)Cost homogeneity
D)Exit barriers

Question 55

When price is likely to be the basis of competition in an industry,firms should invest proactively in ________ signals.

A)soft
B)tough
C)tacit
D)explicit

Question 56

Omega,Inc.signals that if parties cheat on collusive agreements,it will decrease its prices less or increase its output less than would have otherwise been the case.Omega,Inc.is sending a(n)________ signal.

A)explicit
B)tacit
C)tough
D)soft

Question 57

Eight major firms in the rubber products industry are located in the same town.Company managers from these firms all socialize at the same two private clubs and attend the same charity events in town.This suggests that the ________ structure of the rubber industry in this town can create opportunities for tacit collusion.

A)physical
B)cost
C)competitive
D)social

Question 58

Hewlett-Packard's (HP)decision to spin off its electronic instruments business into a separate company is an example of a firm that has adopted a ________.

A)"puppy-dog-play"
B)"fat-cat effect"
C)"top-dog strategy"
D)"lean-and-hungry look"

Question 59

Investing in a new production process that reduces a firm's marginal cost of production is an example of a ________ signal.

A)strategic
B)functional
C)soft
D)tough

Question 60

Tacit collusion is more likely to be successful if there ________ firms in an industry.

A)are a large number of
B)is a small number of
C)are unequally sized
D)are successful

Question 61

According to Cournot cheating,assuming little or no product differentiation among a small number of firms,if one firm decides to cheat on a collusive agreement by reducing its prices,others will as well and,in the long run,firms in this industry will earn no economic profits.

Question 62

In Bertrand cheating,Joseph Bertrand makes the realistic assumption that each time cheating firms adjust their prices,they assume that other firms in the industry will continue cooperating.

Question 63

Collusion is often an easy strategy to maintain over long periods.

Question 64

Gamma Food Products' industry is facing intense competition and both tacit and explicit collusion.Since price is the primary basis of competition in the packaged foods industry,it is recommended that Gamma Food Products invest proactively in ________ signals.

A)tough
B)soft
C)explicit
D)financial

Question 65

Instead of communicating directly,explicitly colluding firms send and interpret signals of intent to cooperate (or intent not to cooperate)sent by potential collusion partners.

Question 66

Bertrand's analysis suggests that the superior profits that can be obtained by colluding firms are quite robust.

Question 67

In 2017,Gamma Food Products is likely the ________ leader in the industry.

A)strategic
B)profitability
C)price
D)operational

Question 68

Cournot examined the performance consequences if colluding firms cheat by adjusting the quantity of their output and let market forces determine prices.

Question 69

Both Bertrand and Cournot,in their collusion cheating models,assume that firms take other firms' prices/outputs in the previous period as variable.

Question 70

Generally,long-run profits for firms that cheat on purely collusive agreements in various ways fall somewhere between the perfect competition,zero-economic-profit solution and the perfect cooperation,shared-monopoly-profit solution.

Question 71

The reason that collusion is a difficult strategy to maintain over time is because the parties to the collusion have strong incentives to cheat on these cooperative agreements.

Question 72

The fact that Gamma Food Products' four competitors were pricing their products at around the same level and reacting quickly to each other's moves suggests that they are ________.

A)signaling
B)competing
C)strategizing
D)organizing

Question 73

While a number of industry attributes have an effect on the level of opportunity for tacit collusion in an industry,none is more important than ________.

A)cost homogeneity
B)product homogeneity
C)the industry social structure
D)the existence of barriers to entry

Question 74

If Polly Kundig decides that Gamma Food Products should react by either decreasing its prices or increase its output,the company is sending out a(n)________ signal.

A)soft
B)strategic
C)operational
D)tough

Question 75

Gamma Food Products finds that its core product,a fruit-based yogurt is losing steam to Greek yogurt.Polly Kundig decides not to get into Greek yogurt because doing so will force Gamma to compete directly with Greek yogurt firms.Gamma's decision is called ________.

A)"puppy-dog ploy"
B)"fat-cat effect"
C)"top-dog strategy"
D)"lean-and-hungry look"

Question 76

The performance results associated with both Bertrand cheating and Cournot cheating depend on assumptions that firms make about how other firms will respond to their own cheating.

Question 77

If Polly Kundig and Gamma Food Products indicate that the company will not cut its prices nor increase its capacity,it is sending out a ________ signal.

A)tough
B)strategic
C)competitive
D)soft

Question 78

Economist and mathematician Joseph Bertrand examined what happens to profits when colluding firms begin cheating by lowering prices below the cooperative price.

Question 79

In examining cheating via collusion,where Bertrand focused on quantity produced,Cournot focused on prices.

Question 80

A "tough" signal is one where the signaling firm indicates that they will aggressively respond to cheating.