Chapter 26: Oligopoly and Strategic Behavior

Explain why network effects can cause the demand for a product either to expand or to contract relative to what it would be if there were no network effects.

List three products that you think are subject to network effects. For each product, indicate whether, in your view, all or just a few firms within the industry that produces each product experience market feedback effects. In your view, are any market feedback effects in these industries currently positive or negative?

Consider the following list, and classify each item according to the appropriate type of two-sided market-audience-making, matchmaking, shared input, or transaction-based-and write a one sentence answer justifying your classification. (Hint: You may wish to check out the firms' Web sites to assist in answering this question.)

a. Realtor.com

b. NYTimes.com

c. Linux.com

d. Paypal.com

Consider the following list, and classify each item according to the appropriate type of two-sided market-audience-making, matchmaking, shared input, or transaction-based-and write a one sentence answer justifying your classification. (Hint: You may wish to check out the firms' Web sites to assist in answering this question.)

a. Mastercard.com

b. FreeBSD.com

c. Plentyoffish.com

d. WSJ.com

Suppose that a company based in Dallas, Texas, confronts only four other rival firms. Its own market share is 35 percent, which ties it with the other largest producer and seller in the industry. The other three firms each have a 10 percent market share. What is the four-firm concentration ratio for this industry?

In Problem 26-14, what is the value of the Herfindahl-Hirschman index?

Suppose that a firm located in Cleveland, Ohio, has entered the same industry as the Dallas company discussed in Problem 26-14. The new firm captures a 5 percent market share, and the market share of one of the smallest three original incumbents declines to 5 percent as well. After the Cleveland firm's entry into the industry, what are the values of the four-firm concentration ratio and of the Herfindahl-Hirschman index?

Consider Figure 26-2. Suppose conditions in the industry change in such a way that the amount that each firm makes if it charges a high price when the other firm charges low price increases from $\backslash (2$million to $\backslash )3$million. Is the firm's pricing decision altered by this change and, if so, in what way? Explain briefly.

Take a look at Figure 26-3. What is the total dollar amount of the typical perfectly competitive firm's economic incentive to join the proposed cartel, assuming that after the fact no firms cheat on the specified cartel agreement? Explain your reasoning.

Consider Figure 26-3, and suppose that this typical firm has agreed to participate in the proposed cartel. What is the total dollar amount of the firm's economic incentive to cheat on the cartel agreement, assuming that all other firms continue to abide by the agreement? Explain your reasoning.