Chapter 13 and 14 Assignment (50 points)
Suppose that the 6 firms in an industry have total annual sales of $100 billion, $50 billion, $40 billion, $30 billion, $20 billion, and $10 billion.
a. What is the four-firm concentration ratio in this industry?
b. What is the Herfindahl index for this industry?
Suppose another industry has a Herfindahl index of 400.
What can you conclude about the relative competitiveness of these two industries?
2. Use the following payoff matrix to answer the next question. The table shows the profit payoffs to each of two oligopolistic firms for following either a high- or low-price policy. Gamma's payoffs are in the lower left corner of each cell, and Delta's in the upper right.
Delta's price policy
High Low
Gamma's price policy
High $50 $20
Low $75 $30
a. If Gamma uses a high-price strategy, what will be Delta's price strategy and payoff value?
b. If both firms make their decisions independently, what will be the most likely outcome and strategy?