ECON 213 InQuizitive 13 Oligopoly and Strategic Behavior Assignment solutions complete answers

ECON 213 InQuizitive 13 Oligopoly and Strategic Behavior Assignment solutions complete answers 

Chapter 13: Oligopoly and Strategic Behavior

 

Fear of shortages during the pandemic caused many people to engage in hoarding behavior. Let’s say Dominic and Marcel both had to decide whether or not to hoard disinfectant wipes. They both decided to hoard disinfectant wipes, though they could both have had a higher payoff if they had been able to trust each other not to hoard. Fill in the blanks to complete the passage below about the outcome of their decisions.

This scenario is an example of –Press Space to open
prisoner’s dilemma
optimal
tit for tat
suboptimal
, where cooperation between the two decision-makers fails because they both have dominant strategies that lead them to be uncooperative. They end up with the Nash equilibrium being the –Press Space to open
prisoner’s dilemma
optimal
tit for tat
suboptimal
 outcome.

 

Based on the decision tree below, if Azalea chooses a strategy to disagree, what will Iggy’s payoff be?

 

Oligopolists generally set prices lower than a monopolist.

 

What is Azalea’s dominant strategy?

 

After reading the comic below, what would be the best strategy for Hagar?

 

The race for a vaccine for COVID-19 put pharmaceutical companies in the spotlight in 2020, as many wondered if the industry would continue to exert its market power by acting like an oligopoly.

Which of the following are reasons the industry would be defined as an oligopoly? Which are not?

 

What is Iggy’s dominant strategy?

 

The following decision tree demonstrates a sequential game between Azalea and Iggy. Based on the given information, what is Azalea’s best strategy?

 

To combat the spread of the coronavirus during the pandemic, several states issued mandatory lockdowns. The lockdowns led many consumers to panic and hoard certain goods, which caused shortages and led to more panic. We can apply game theory to this behavior. Let’s assume Alex and Willow are both rational consumers faced with two choices: hoard toilet paper or don’t hoard toilet paper. Based on this assumption, there are only three outcomes:

1.    Both players hoard toilet paper.

2.    Only one player hoards toilet paper.

3.    Neither player hoards toilet paper.

The matrix below represents Alex and Willow’s expected payoffs as indicated by the maximum number of days they could be left without toilet paper. Higher numbers are therefore worse in this context.

If they both hoard toilet paper, demand will increase, leading to higher prices and more shortages. If only one hoards, then only a shortage would occur and only one would have to search longer for toilet paper. If neither hoard, the price will remain the same and there will be a limited shortage, making them both better off.

Drag each label to the appropriate square.

 

Lukas owns a phone company in a city with three other phone companies. He wants to attract more customers and is considering lowering his prices to do so. Will this strategy work? Fill in the blanks to complete the passage.

This strategy likely will not
 work. It is likely that the other companies in the industry will respond by lowering
 their prices. In this scenario, there will be a change in the revenue of Lukas’s phone company, which is due to the –Press Space to open
gain
lose
raising
output effect
price effect
will
; however, Lukas hopes to –Press Space to open
gain
lose
raising
output effect
price effect
will
 more customers by this price change, an example of the –Press Space to open
gain
lose
raising
output effect
price effect
will
.

 

Jake does not like his current cell phone provider. He researches some other companies but then decides to stay with the one he’s using. Why might Jake stay with a company he does not like?

 

Apply the correct label to each network externality or externality-related effect.

In order to use a different cable provider, Amalia must pay to install new equipment in her home.

Everyone at Ricardo’s school uses metal lunchboxes, which makes Ricardo want to buy one, too.

Telephones were not very useful when only a few first adopters had one.

 

All games have dominant strategies.

 

What generally causes U.S. companies in oligopoly to have similar prices?

 

How is oligopoly different from monopolistic competition?

There are low barriers to entry for oligopolistic industries.

There are many sellers in oligopolistic industries.

There are significant barriers to entry in an oligopolistic market.

There are few sellers in an oligopolistic industry.

Oligopolistic industries do not sell a differentiated product.

 

The Sherman Antitrust Act of 1890 was successful enough in reducing the power of cartels and monopolies that no further legislation to curb monopoly power has ever been needed.

 

What must be demonstrated to prove that a company engaged in predatory pricing?

The firm made agreements with other companies to form a cartel.

The company stopped advertising once its competitors left the market.

The company significantly raised its prices after its rivals were forced out of the market.

The company deliberately set its prices below its average variable costs.

 

Joey and Sarah own competing cell phone companies. Using tit-for-tat strategy, describe what Joey should do if Sarah decides to change her advertising practices. Fill in the blanks to complete the passage.

If Sarah increases her advertising, Joey should – his advertising. However, if Sarah decreases her advertising, Joey should – his. Tit-for-tat is a – strategy that promotes cooperation. If Joey and Sarah follow a tit-for-tat strategy to a cooperative outcome, they can – of money on advertising.

 

Two cable companies serve a city. The companies are of comparable size and are charging the profit-maximizing price. Then Company A raises its prices.

According to the kinked demand curve theory, what will Company B do?

 

How could network externalities encourage monopolistic behavior? Fill in the blanks to complete the passage.

Significant – may cause less-established firms to go out of business or force them to –with other companies. A – consumer base will allow a firm to grow quickly, which will make it difficult for – to become successful.

 

Why might it be difficult for the firms in a duopoly to form a cartel? Fill in the blanks to complete the passage.

In the United States, cartels are –. However, even if they weren’t, cartels are not always stable. If one firm in a two-member cartel decides to –, the other firm will be forced to – the first one. Eventually both companies would arrive at the – and end up earning less revenue.

 

Why would two rival airlines choose not to follow a tit-for-tat strategy to reduce or eliminate advertising?

 

The output in chairs per month for four firms is:

200 for firm A
300 for firm B
275 for firm C
320 for firm D
The total output of the chair industry is 2,000 chairs per month. If firms A, B, C, and D are the four largest firms in the industry, calculate the four-firm concentration ratio for the chair industry by finding out what percentage of the total output the four firms are responsible for. Round your answer to the nearest whole percent.

 

Three separate oligopolists in the same industry serve a city. Company A is the dominant firm in the industry and produces a large share of the total output in the industry. Companies B and C are rival firms, but they are much smaller than Company A. Company A sets its price at a level that maximizes its own profits.

According to the theory of price leadership, what will Companies B and C likely do?

 

When are prices higher? Order the following market scenarios from lowest price to highest price based on their descriptions.

 

Why might network externalities cause a new cable provider to be unsuccessful when it tries to enter the market?

The new cable provider might not offer a channel that carries a popular show.

The channels offered by the new cable provider may be different from those offered by established cable providers.

The new cable provider might offer a cheaper rate for new customers.

The new provider may have high installation fees.

 

Lukas owns a phone company in a city with three other phone companies. He wants to attract more customers and is considering lowering his prices to do so. According to the kinked demand curve theory, will this strategy work? Fill in the blanks to complete the passage.

This strategy likely – work. It is likely that the other companies in the industry will respond by – their prices. In this scenario, – can expect to gain new customers. According to the kinked demand curve theory, this behavior creates a demand curve that is – at prices above the cartel price and – at prices below the cartel price.

 

Sometimes duopolists try to cooperate with one another. Match the economic phenomenon to the description that most accurately describes it.

Four international electronics manufacturers group together to limit the amount of computers available on the market.

Two cable companies are forced to cease working together to set prices in their market.

Two Internet companies come to an agreement to charge the same amount for their services.

 

Maddie and Gavin own competing bakeries in a small town. Maddie lowers her bakery’s prices to a point at which Gavin cannot compete, and he must go out of business. Gavin believes Maddie deliberately lowered her bakery's prices with the intent of driving his bakery out of business. Gavin wants to file suit against Maddie. Does Gavin have a case? Fill in the blanks to complete the passage.

Gavin believes that Maddie engaged in – pricing. This occurs when a firm deliberately lowers its prices below – costs with the intent of driving rivals from the market. However, to prove that this occurred, Gavin needs evidence that Maddie – her bakery's prices significantly after his firm failed.

 

Match the strategy to the scenario it describes.

A homeowner prefers to ignore water conservation rules and water his lawn often, regardless of whether his neighbors are doing the same or are conserving water.

Company A lowers its prices, and Company B responds in kind.

Country A agrees to reduce its stockpile of nuclear weapons at the same rate as Country B.

 

Match the company to the outcome of its antitrust suit.

 

Imagine the market for cell phone service in a small town, and assume that the marginal cost of a firm adding more customers is zero. The demand schedule is shown in this table. At what price point does marginal cost equal marginal revenue for a firm in a competitive market? Click or tap the row of the table that shows this price point.

 

Read the comic. What strategy is Hagar describing? What happens in the last panel? Fill in the blanks to complete the passage.

Hagar is describing –. He plans on ridding himself of weapons, one after the other, and expects his enemy to –. However, in the end Hagar plans to keep a dagger in his hat, even if his enemy has completely disarmed. He abandons – in favor of –.

 

Which of the following are key characteristics of game theory?

 

Imagine you are developing the advertising strategy for PepsiCo. Look at the chart and list your outcomes from best to worst.

 

 

There are two cable providers in Jennifer’s small town. What economic phenomenon is this an example of? Fill in the blanks to complete the passage.

The cable market in Jennifer’s town is an example of a –. When there are only two firms in a market, they tend to have a lot of excess capacity, which significantly reduces the – of adding customers. In this scenario, competition will be similar to competition in a – industry.

 

In a duopoly, suppose neither firm advertises at first. If one firm begins advertising, what will happen in the long run according to game theory?

 

How are network externalities and the number of competitors in an oligopoly related?

The first firm in a market may grow a customer base quite quickly, but that customer base may not be very loyal, so it is likely they will switch to new entrants.

The first firm in a market will often grow a customer base quite quickly, which makes it more difficult for subsequent entrants to gain customers.

There is no relationship between network externalities and the number of competitors in an oligopoly.

The first firm in a market will often struggle to build a customer base. Customers will readily switch to new firms as they enter the market.

 

Mirko owns a phone company. He makes a deal with the only local rival to charge customers $50/month. Later, Mirko becomes a member of the board of directors of both companies. What, if anything, has Mirko done that is illegal?

 

Tony and Manny are being interrogated separately by the authorities about a crime they both participated in. Drag each label to the appropriate square.

 

A small U.S. town has three options for Internet service. What is likely to happen if a fourth competitor joins the market?

 

AT-Phone and Horizon are firms in a duopoly. Which outcome is consistent with the two firms acting in an illegal manner? Click or tap the correct box in the matrix.

 

Oligopolists generally set prices lower than industries in a monopoly.

 

Match the company to the outcome of its antitrust suit.

 

International competition does not affect domestic oligopolies.

 

It is possible for a new entrant to an oligopoly market to be successful, even if existing firms in the market are large and have strong customer bases.