Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 10, Problem 5P
To determine
Whether the firms in an oligopoly act independently or interdependently.
Concept Introduction:
Oligopoly refers to a market which is dominated by a small number of large sellers (oligopolists).
Oligopoly has its own market structure.
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NAME
DATE
CLASS
Math Practice for Economics
Comparing Prices among Competitors
networks
Background information: The candy industry in the United States could be defined as an oligopoly
because just three companies make 99.4% of snack size chocolates. The big three companies are
Hershey's, Mars, and Nestle. All three companies use much of the same ingredients, so how do they
compete against one another? This is primarily done through price.
Directions: The two tables below show what a snack size chocolate costs from the various candy
makers, big and small. Read the table below. Then, answer the following questions using the
information in the table.
110 ct bag $18.12
= 16 cents each
Walmart
Amazon
Hershey's
215 ct. bag $13.88
= 6 cents each
100 ct. bag $12.81
= 13 cents each
Mars
230 ct. bag $13.88
= 6 cents each
Nestle
70 ct. bag $8.98
= 13 cents each
55 pc. Bag $17.96
= 33 cents each
Candy…
6. Oligopolies
This chapter discusses companies that are oligopolists in the market for the goods they sell. Many of the same ideas apply to companies that are
oligopolists in the market for the inputs they buy. If sellers who are oligopolists try to increase the price of goods they sell, the goal of buyers who are
oligopolists is to try to decrease the prices of goods they buy.
Major league baseball team owners have an oligopoly in the market for baseball players.
The owners' goal is to keep players' salaries
True or False: This goal is difficult to achieve because baseball players demand more money.
True
False
Baseball players went on strike in 1994 because they would not accept the salary cap that the owners wanted to impose.
True or False: The owners felt the need for a salary cap to dissolve collusive behavior over salaries.
True
False
(REAL-WORLD APPLICATION) You are NOT required to read the oligopoly chapter in the textbook, but
you already know quite a lot about it from our discussion of strategic interactions using game theory
in weeks 2-3. This market structure is between monopoly and monopolistic competition, with only a
handful of firms having a high degree of market power. Let's refresh your memory with the following
example. Assume that the Australian low-cost airline industry consists of two firms and their situation can
be represented by the following payoff matrix.
Tigar Air
Nothing
Low Price
More Advertising
0, 16
6, 6
Nothing
10, 10
2, 14
Jetstar
Low Price
16, 0
12, 4
More Advertising
14, 2
4, 12
8, 8
a. Before solving the game, put yourself in the position of Jetstar and write down your action. Then
independent of that, put yourself in the position of Tiger Air and write down your action.
b. State all the dominated strategies in the full game, by which strategy they are dominated, and
whether weakly or…
Knowledge Booster
Similar questions
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- 6. Suppose that the market for e-readers is an oligopoly controlled by Amazon, Barnes &Noble, Sony, and Apple. Barnes & Noble is considering increasing its output. How would this affect the market price? How would it affect the profits of each company?arrow_forward2. Philip Morris and R.J. Reynolds spend huge sums of money each year to advertise their tobacco products in an attempt to steal customers from each other. Suppose each year Philip Morris and R.J. Reynolds have to decide whether or not they want to spend money on advertising. If neither firm advertises, each will earn a profit of $2 million. If they both advertise, each will earn a profit of $1.5 million. If one firm advertise and the other does not, the firm that advertises will earn a profit of $2.8 million and the other firm earn $1 million.c. Use a payoff matrix to depict this problem.d. What is the dominant strategy for Philip Morris and R.J. Reynolds?e. What is the Nash Equilibrium without an enforceable contract?arrow_forward18. Horizontal Integration is most likely to lead to an industry that is: monopolistically competitive an oligopoly any of the other answers O perfectly competitivearrow_forward
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