Oligopoly and Game Theory

If the three largest widget producers control 85 percent of the total widget market, then these producers are operating in

• An oligopoly

• Monopolistic Competition

• Perfect Competition

• A monopoly

• A cartel

What are the dominant strategies for Bright and Sparkle, respectively?

• Bright - Strategy 1; Sparkle - Strategy 1

• Bright - Strategy 1; Sparkle - Strategy 2

• Bright - Strategy 2; Sparkle - Strategy 1

• Bright - Strategy 2; Sparkle - No Dominant Strategy

• Bright - No Dominant Strategy; Sparkle - Strategy 1

If the two firms collude, Firm A’s and Firm B’s profits would be which of the following?

• Firm A $150; Firm B $50

• Firm A $100; Firm B $100

• Firm A $100; Firm B $150

• Firm A $50; Firm B $100

• Firm A $50; Firm B $50

If each firm simultaneously chooses its pricing strategy without collusion, Firm A’s and Firm B’s profits would be which of the following?

• Firm A $150; Firm B $50

• Firm A $100; Firm B $100

• Firm A $100; Firm B $150

• Firm A $50; Firm B $100

• Firm A $50; Firm B $50

Game theory is a useful model to explain the behavior of firms in a market when the firms are

• independent of one another

• price takers

• regulated by government

• altruistic

• interdependent

Pam and Tara run two competing lemonade stands in a town. In the payoff matrix above, the first entry in each cell shows the profits to Pam, and the second entry in each cell shows the profits to Tara. According to the information, which of the following is true?

• If Pam sets the high price, Tara will do best by charging the low price.

• If Pam sets the low price, Tara will do best by charging the high price.

• The dominant strategy for both is to charge the high price.

• The dominant strategy for Tara is to set the low price and for Pam is to set the high price.

• Neither Tara nor Pam has a dominant strategy.

Pam and Tara run two competing lemonade stands in a town. If Pam and Tara do not collude, what will their profit be?

• Pam $40; Tara $40

• Pam $70; Tara $20

• Pam $20; Tara $70

• Pam $30; Tara $0

• Pam $70; Tara $70

Given that each firm is aware of the information in the payoff matrix, which of the following is true?

• Neither Alpha nor Beta has a dominant strategy.

• Both Alpha and Beta have a dominant strategy to price high.

• Both Alpha and Beta have a dominant strategy to price low.

• Alpha has a dominant strategy to price low, whereas Beta has a dominant strategy to price high.

• Alpha has a dominant strategy to price high, whereas Beta has no dominant strategy.

Nash equilibrium occurs with which combination of strategies?

• Both firms charging a low price

• Both firms charging a high price

• Alpha charging a low price and Beta charging a high price

• Alpha charging a high price and Beta charging a low price

• There is no equilibrium in this game

Which of the following is a Nash equilibrium?

• Both Art and Zeb will lower prices.

• Art will lower prices, and Zeb will charge the same prices.

• Art will charge the same prices, and Zeb will lower prices.

• Both Art and Zeb will charge the same prices.

• There is no Nash equilibrium.