Chapter 26: Oligopoly and Strategic Behavior

If a dominant firm cannot maintain a cost advantage over other fringe firms in the industry, why might we anticipate that eventually its "dominance" might disappear? (Hint: What would happen to the number of fringe producers if the dominant firm were to earn economic profits and then what would happen over time to the dominant firm's profits?

If there are 13 "All others" in the industry in Problem 26-1, each of which has a share of sales equal to 1 percent, what is the value of the Herfindahl-Hirschman Index for this industry?

What is the value of the Herfindahl-Hirschman Index for the industry in Problem 26-2?

Characterize each of the following as a positive-sum game, a zero-sum game, or a negative-sum game.

a. Office workers contribute$S10$each to a pool of funds, and whoever best predicts the winners in a professional sports playoff wins the entire sum.

b. After three years of fighting with large losses of human lives and materiel, neither nation involved in a war is any closer to its objective than it was before the war began.

c. Two collectors who previously owned incomplete and nearly worthless sets of trading cards exchange several cards, and as a result both end up with completed sets with significant market value.

Characterize each of the following as a positive-sum game, a zero-sum game, or a negative-sum game.

a. You play a card game in your dorm room with three other students. Each player brings \($5$to the game to bet on the outcome, winner take all.

b. Two nations exchange goods in a mutually beneficial transaction.

c. A thousand people buy \)1 lottery tickets with a single payoff of $$800$.

Last weekend, Bob attended the university football game. At the opening kickoff, the crowd stood up. Bob therefore realized that he would have to stand up as well to see the game. For the crowd (not the football team), explain the outcomes of a cooperative game and a non-cooperative game. Explain what Bobs "tit-for-tat strategic behavior" would be if he wished to see the game.

Consider two strategically dependent firms in an oligopolistic industry, Firm A and Firm B. Firm A knows that if it offers extended warranties on its products but Firm B does not, it will earn $\backslash (6$ million in profits, and Firm B will earn $\backslash )2$ million. Likewise, Firm B knows that if it offers extended warranties but Firm A does not, it will earn $\backslash (6$ million in profits, and Firm A will earn$\backslash )2$ million. The two firms know that if they both offer extended warranties on their products, each will earn $\backslash (3$ million in profits. Finally, the two firms know that if neither offers extended warranties, each will earn $\backslash )5$million in profits.

a. Set up a payoff matrix that fits the situation faced by these two firms.

b. What is the dominant strategy for each firm in this situation? Explain.

Take a look back at the data regarding the inkjet printer industry in Problem 26-2, and answer the following questions.

a. Suppose that consumer demands for inkjet printers, the prices of which are readily observable in office supply outlets and at Internet sites, are growing at a stable pace. Discuss whether circumstances are favorable to an effort by firms in this industry to form a cartel.

b. If the firms successfully establish a cartel, why will there naturally be pressures for the cartel to break down, either from within or from outside?

What wats the five-firm concentration ratio in the broadband industry?

Sources are listed at the end of this chapter.

What would be the revised HHI value if the top dozen firms decided to conduct a horizontal merger and offer a single "Top 12 Tablet" product?