Please read chapter 10 and answer the following questions:
1. (Varieties of Oligopolies) do the firms in an oligopoly act independently or interdependently? Explain your answer.
2. (Price Leadership) why might a price–leadership model of oligopoly not be an effective means of collusion in an oligopoly?
* Price leadership practices violate US anti-trust laws.
* The more differentiated the product is, the less effective price leadership is as a means of collusion.
* There is no guarantee firms will follow the leader forcing the leading firm to reduce prices.
* Cheating may occur.
* A new entry can destabilize the price leader's position…
-If a price leader in an ...view middle of the document...
The professor speaks with each student separately and offers the following deal: Sign a statement admitting to cheating. If both students sign the statement, each will receive an “F” for the course. If only one signs, he is allowed to withdraw from the course while the other student is expelled. If neither signs, both receive a “C” since the professor does not have sufficient evidence to prove cheating. Which outcome do you expect? Why?
* Prisoners’ Dilemma…
* In this case, both students will probably confess if they’re coherent about life. Why? Because each Student gets a better payoff by confessing no matter what the other the student does. Student #1 thinks, “I don’t know what student # 2 is going to do, so if I confess it’s the best way to keep myself from getting expelled. If he keeps quiet, I get a “C”. Yet if he confesses, I get expelled instead of receiving an “F” for the course.” In other words, confessing is the only way to keep the other Student from being able to get me expelled.
5.(Market Structures) Determine whether each of the following is a characteristic of perfect competition, monopolistic competition, oligopoly, and/or monopoly:
a. A large number of sellers /… Perfect competition
b. Product is a commodity…/ Government Monopoly (Utility)
c. Advertising by firms…/ Oligopoly
d. Barriers to entry… / Monopoly
e. Firms that are price makers…/a monopoly is a price maker as it holds a large amount of power over the price it charges.
6. OPEC is the economist’s favorite cartel to study, partly because it had such a spectacular short-run success and partly because oligopoly theory could be used to predict how OPEC pricing actually evolved. Please check OPEC website at http://www.opec.org/home/ What are some recent developments in petroleum pricing? How relevant are the factors listed in this chapter in affecting the difficulty of maintaining a cartel?
OPEC may face a Shia-Sunni split if the political climate in the region and crude prices deteriorate…
* "A growing Sunni-Shia split within OPEC may threaten the management of the oil market in the event of downward pressure on prices if the global economy reverts to recession,"
* “There are also divisions between pro- and anti-Western members, which have tended to replicate the division between those favoring pricing oil in dollars and those preferring an alternative currency such as the euro.”
* ”There is the division between countries that can easily produce more than their quotas and those struggling to meet their quotas.”
* The recent intervention of Saudi Arabia in Bahrain has brought relations with Iran to an extremely low point “This is likely to last as the Arab uprisings deepen divisions between Sunni and Shi’a regimes in...