Michael Parkin
ISBN #9780133872279
12th Edition
839 Questions
Homework Questions
This section explores oligopoly and the strategic behavior of firms operating in markets with a few dominant players. By applying game theory, including models like the prisoners’ dilemma and Nash equilibrium, we understand why firms may end up in competitive outcomes even when collusion could yield higher collective profits. The discussion also highlights how repeated and sequential games, through strategies like tit-for-tat, can potentially sustain cooperation, while antitrust laws work to prevent collusion and protect consumer welfare. Key takeaways include the importance of strategic interdependence in oligopoly, the pitfalls of dominant strategies, and the role of regulatory oversight in market dynamics.
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Intel and Advanced Micro Devices make most of the chips that power a PC. What makes the market for $\mathrm{PC}$ chips a duopoly? Sketch the market demand and cost curves that describe the situation in the market and that prevent firms from entering.
Energizer is gaining market share against competitor Duracell and its profit is rising despite the sharp rise in the price of zinc, a key battery ingredient. Source: www.businessweek.com, August 2007 In what type of market are batteries sold? Explain your answer.
In the 1990 s, Reliance spent $\$ 6$ billion to build a world-class oil refinery at Jamnagar, India. Now Reliance's expansion will make it the world's biggest producer of gasoline- 1.2 million gallons per day, or about $5 \%$ of global capacity. Reliance plans to sell the gasoline in the United States and Europe where it's too expensive and politically difficult to build new refineries. The bulked-up Jamnagar will be able to move the market and singapore traders expect a drop in fuel prices as soon as it's going at full steam. Source: Fortune, April 28, 2008 a. Explain why the news clip implies that the gasoline market is not perfectly competitive. b. What barriers to entry might limit competition and allow Reliance to influence the price?
Consider a game with two players who cannot communicate, and in which each player is asked a question. The players can answer honestly or lie. If both answer honestly, each receives $\$ 100$. If one player answers honestly and the other lies, the liar receives $\$ 500$ and the honest player gets nothing. If both lie, then each receives $\$ 50$. a. Describe the strategies and the payoffs. b. Construct the payoff matrix. c. What is the equilibrium of this game? d. Compare this game to the prisoners' dilemma. Are the games similar or different? Explain.
Soapy Inc. and Suddies Inc., the only soappowder producers, collude and agree to share the market equally. If neither firm cheats, each makes $\$ 1$ million. If one firm cheats, it makes $\$ 1.5$ million, while the complier incurs a loss of $\$ 0.5$ million. If both cheat, they break even. Neither firm can monitor the other's actions. a. What are the strategies in this game? Construct the payoff matrix for this game. b. If the game is played only once what is the equilibrium? Is it a dominant-strategy equilibrium? Explain.