Question 1

Ford and General Motors are considering expanding into the Vietnamese automobile market. Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision.

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Question 2

A law that encourages market competition by prohibiting firms from gaining or exercising excessive market power is

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Antitrust laws are designed to promote competition and prevent monopolies or firms from gaining excessive market power. These laws aim to prevent anti-competitive behavior such as price fixing, collusion, and monopolistic practices that can harm consumers and reduce market competition. Examples of antitrust laws include the Sherman Act, Clayton Act, and Federal Trade Commission Act in the United States.

Question 3

Describe the source of tension between cooperation and self-interest in a market characterized by oligopoly. Use an example of an actual cartel arrangement to demonstrate why this tension creates instability in cartels.

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Question 4

Briefly describe the practice of predatory pricing.

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Question 5

Outline the purpose of antitrust laws. What do they accomplish?

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Question 6

Explain the practice of tying and discuss why it is controversial.

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Question 7

Suppose that antitrust laws were successful in moving the allocation of resources in the computer software industry closer to the social optimum. This situation would illustrate which of the following Ten Principles of Economics?

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This situation illustrates the principle that governments can sometimes improve market outcomes by intervening to correct market failures, such as the abuse of market power by dominant firms. Antitrust laws are designed to prevent firms from engaging in anti-competitive behavior that results in distortions in the allocation of resources, and by doing so, help move the market closer to a socially optimal allocation.

Question 8

Assume that demand for a product that is produced at zero marginal cost is reflected in the table below.  
a.What is the profit-maximizing level of production for a group of oligopolistic firms that operate as a cartel?
b.Assume that this market is characterized by a duopoly in which collusive agreements are illegal. What market price and quantity will be associated with a Nash equilibrium?

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Question 9

Nike and Reebok (athletic shoe companies) are considering whether to advertise during the Super Bowl. Devise a simple prisoners' dilemma game to demonstrate the strategic considerations that are relevant to this decision. Does the repeated game scenario differ from a single period game? Is it possible that a repeated game (without collusive agreements) could lead to an outcome that is better than a single-period game? Explain the circumstances in which this may be true.

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Question 10

Government regulators might suspect a firm of engaging in predatory pricing if it charges prices that seem to be too __________.

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Question 11

Describe the output and price effects that influence the profit-maximizing decision faced by a firm in an oligopoly market. How does this differ from output and price effects in a monopoly market?

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Question 12

Even when allowed to collude, firms in an oligopoly may choose to cheat on their agreements with the rest of the cartel. Why?

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Question 13

Explain the practice of resale price maintenance and discuss why it is controversial.

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Question 14

Explain how the output effect and the price effect influence the production decision of the individual oligopolist.

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Question 15

What effect does the number of firms in an oligopoly have on the characteristics of the market?

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Question 16

From society's standpoint, cooperation among oligopolists is

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Society benefits from firms producing at a level that is socially optimal, where marginal cost equals marginal benefit. Oligopolies, where a few firms dominate the market, have a natural incentive to collude and restrict output in order to maximize profits. This can lead to higher prices and lower output than would occur under a more competitive market structure. Therefore, cooperation among oligopolists is generally considered to be undesirable from society's standpoint.

Question 17

The primary purpose of antitrust legislation is to

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The primary purpose of antitrust legislation is to protect the competitiveness of U.S. markets by preventing monopolies and promoting fair competition among firms. Antitrust laws aim to ensure that no single firm can dominate a market, drive out competitors, and control prices, which ultimately hurts consumers. The goal is to encourage innovation, lower prices, and increase quality through healthy competition.

Question 18

Which of the controversial business practices, resale price maintenance, predatory pricing, or tying, was a part of a long-running antitrust lawsuit against Microsoft and why?

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Question 19

Scenario 17-6
Assume that a local telecommunications company sells high speed internet access and cable television. The company's only two customers are Taylor and Tim. Taylor is willing to pay $50 per month for high speed internet access and $50 per month for cable television. Tim is willing to pay only $20 per month for high speed internet access, but is willing to pay $70 per month for cable television. Assume that the telecommunications company can provide each of these products at zero marginal cost.
-Refer to Scenario 17-6. How much additional profit can the telecommunications company earn by switching to the use of a tying strategy to price high speed internet access and cable television rather than pricing these goods separately?

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Assume that a local telecommunications company...

Question 20

The story of the prisoners' dilemma shows why

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The prisoners' dilemma is a classic game theory scenario where two people have the option to either cooperate or betray each other. In the context of oligopolies, it shows how two or more firms may fail to cooperate even when it's in their best interest to do so. This is because each firm is incentivized to act in their own self-interest and maximize their profits, even if it means betraying the other firms. This highlights the difficulties that oligopolies face when trying to work together, and the potential negative consequences that can result from their failure to cooperate.

Quiz 17: Oligopoly