Critical Thinking 5 Assignment
NAME GRADE 76
Questions Salvatore 10: Discussion Question 2
(a) What are the advantages of the Herfindahl index over concentration ratios in measuring the degree of concentration in an industry? (b) What is the disadvantage of both?
(a) The advantages of the Herfindahl index are: (1) uses information on all the firms in an industry, not just market share of the largest 4,8 or 12. (2) appropriately gives more weight to larger firms than to smaller firms within the industry. (b) Disadvantage to both is that they may overestimate the market power of the largest firms in the industry. Neither model considers contestable markets; this is also a ...view middle of the document...
(1) QA = 4.8 (2) Qb = 2.4 Five Forces and the Airline Industry Examine the U. S. passenger industry? Why or why not? The US passenger airline industry is not an attractive industry relative to the Porter's Five Forces model. Although the airline industry does have a high barrier to entry because of its high capital structure, big brand saturation, and a high regulatory environment, all of the other components of the model point more towards an unattractive industry. For example, buyer power is high because passengers can easily switch between carriers, supplier power is high because of higher supplier concentrations and significance, sensitivity and differentiation of the input. There are available substitutes that exist (ex. rail, road, etc.). Lastly there are high levels of competition with existing firms due to shear number of carriers that exist. The industry is very crowded, so there is intense price competition. How did the 1971 law that banned cigarette advertising on television solve the prisoners’ dilemma for cigarette producers?
Salvatore 11: Discussion Question 12
Salvatore 10: Problem 5
Froeb et al 10: IP 10airline industry using the Five Forces. Is this an attractive 4
NOTE: Explain first the prisoners' dilemma for cigarette producers before 1971 law. Use table 11-4, replace Low Price with Advertise, and High Price with Don't Advertise. You would see this is similar to the prisoners' dilemma Prisoner's dilemna for cigarette producers before the 1971 law was that two firms would earn more profits if they both took the position to not advertise. Their dominant strategies to advertise would have only earned them a profit of 2 vs a profit of 3 for not advertising. The 1971 law that banned cigarette advertising on television shows solved their prisoner's dilemna by forcing them to not advertise, which according to the payoff matrix was the best decision for them, representing a prisoner's dilemna. (See Problem Calcs)
Salvatore 11: Discussion Question 13
( a) What is the meaning of tit- for- tat in game theory? ( b) What conditions are usually required for tit- for- tat strategy to be the best strategy? (a) Tit for tat in game theory means to do unto your opponent/competition the same thing(s) that they have just done to you. It is a retaliatory strategy (b) In order to tit for tat to be the best strategy the following conditions are required: 1. reasonably stable set of players 2. there must be a small number of players 3. assumption that each firm can quickly detect, willing and able to quickly retaliate against cheating by other firms 4. demand and cost conditions must be relatively stable 5. assume that the game is repeated indefinietely, or at least a very large and uncertain number of times
From the following payoff matrix, where the payoffs are the profits or losses of the two firms, determine (a) whether firm A has a dominant strategy, (b) whether firm B has a dominant strategy, (c) the...