Characteristics of Oligopolies
Oligopolistic industries are characterized by: a few dominant firms and substantial entry barriers; a few dominant firms and no barriers to entry; a large number of firms and low entry barriers; a few dominant firms and low entry barriers.
a few dominant firms and substantial entry barriers.
The four-firm concentration ratio for an industry measures the: profitability of the four largest firms in the industry; extent to which the four largest firms dominate the sales of a good; percentage of the industry’s workforce employed by the four largest firms; degree of product variation in the industry.
extent to which the four largest firms dominate the sales of a good.
If three or four homogeneous oligopolists collude, the resulting price and production outcomes will be similar to those of pure monopoly. (T/F)
True
Game theory: is the analysis of how people (or firms) behave in strategic situations; is best suited for analyzing purely competitive markets; reveals that mergers between rival firms are self-defeating; reveals that price-fixing among firms reduces profits.
is the analysis of how people (or firms) behave in strategic situations
In the United States, cartels are: quite common in industries that produce nondurable goods; concentrated in monopolistically competitive industries; encouraged by government policy so firms can achieve economies of scale; in violation of the antitrust laws.
in violation of the antitrust laws.
In which of these continuums of degrees of competition (lowest to highest) is oligopoly properly placed? (pure monopoly, monopolistic competition, oligopoly, pure competition), (monopolistic competition, pure competition, pure monopoly, oligopoly), or (pure monopoly, oligopoly, monopolistic competition, pure competition)
pure monopoly, oligopoly, monopolistic competition, pure competition
Suppose that total sales in an industry in a particular year are $600 million and sales by the top four sellers are $200 million, $150 million, $100 million, and $50 million, respectively. We can conclude that: price leadership exists in this industry; the concentration ratio is more than 80 percent; this industry is a differentiated oligopoly; the firms in this industry face a kinked demand curve.
the concentration ratio is more than 80 percent
The mutual interdependence that characterizes oligopoly arises because: the products of various firms are homogeneous; the products of various firms are differentiated; each firm in an oligopoly depends on its own pricing strategy and that of its rivals; demand curves of firms are kinked at the prevailing price.
each firm in an oligopoly depends on its own pricing strategy and that of its rivals
What is a Nash equilibrium? A situation in which all players cooperate to achieve the best overall outcome for the group; A strategy profile in which no player can benefit by changing their strategy while the other players keep theirs the same; The outcome that maximizes total profits for all players involved in a game; A scenario in which one player always wins regardless of the other players’ choices.
A strategy profile in which no player can benefit by changing their strategy while the other players keep theirs the same
Suppose the only three existing manufacturers of videogame players signed a written contract by which each agreed to charge the same price for products and to distribute their products only in the geographical area assigned them in the contract. This best describes: cost-plus pricing; multiproduct pricing; a cartel; price leadership.
a cartel.
Which of the following is an illustration of differentiated oligopoly? the aluminum industry; the wheatindustry; the soft drink industry; retail stores in large cities.
the soft drink industry
Assume six firms composing an industry have market shares of 30, 30, 10, 10, 10, and 10 percent. The Herfindahl index for this industry is:
2,200
Homogeneous oligopolists tend to advertise more than do differentiated oligopolists. (T/F)
False
(19) Refer to the diagram, where the numerical data show profits in millions of dollars. Beta’s profits are shown in the northeast corner and Alpha’s profits in the southwest corner of each cell. If both firms follow a high-price policy: Alpha will realize a $10 million profit and Beta a $30 million profit; each will realize a $20 million profit; Beta will realize a $10 million profit and Alpha a $30 million profit; each will realize a $15 million profit.
each will realize a $20 million profit
Advertising can enhance economic efficiency when it: increases brand loyalty; raises entry barriers; increases consumer awareness of substitute products; boosts average total cost.
increases consumer awareness of substitute products
The copper, aluminum, cement, and industrial alcohol industries are examples of: interproduct competition; homogeneous oligopoly; monopolistic competition; differentiated oligopoly.
homogeneous oligopoly
Calculate the Herfindahl Index for an industry of 6 firms with the following market shares: 20%, 20%, 20%, 20%, 10%, 10%.
1,800
A low concentration ratio means that: there is a low probability of entering the industry; there is a low probability of success in the industry; each firm accounts for a small market share of the industry; each firm accounts for a large market share of the industry.
each firm accounts for a small market share of the industry.
Refer to the diagram, where the numerical data show profits in millions of dollars. Beta’s profits are shown in the northeast corner and Alpha’s profits in the southwest corner of each cell. If Alpha and Beta agree to a high-price policy through collusion, the temptation to cheat on that agreement is demonstrated by the fact that: Beta can increase its profit by lowering its price; Beta can increase its profit by increasing its price still further; both Alpha and Beta can earn even more profits if both agree to a low-price policy; Alpha can increase its profit by reducing its production costs.
Beta can increase its profit by lowering its price.
In 2021, which of the following U.S. firms spent the most on advertising? General Motors, AT&T, Amazon, Disney
Amazon
Which statement about oligopoly is false? Oligopolistic firms recognize their interdependence; Prices in an oligopoly are predicted to fluctuate widely and frequently; A few firms play an important role in the sale of a product; One firm’s behavior is a function of what its rivals do.
Prices in an oligopoly are predicted to fluctuate widely and frequently.
Suppose the Herfindahl indexes for industries A, B, and C are 6,500, 4,132, and 1,019, respectively. These data imply:
that market power is greatest in industry A.
The oligopolist’s kinked-demand curve is highly elastic below and highly inelastic above the going product price. (T/F)
False
As it relates to oligopoly, game theory focuses on the strategic behavior of rival firms. (T/F)
true
In competing with rivals, oligopolistic firms will tend to use: price cuts because they do not add to costs like advertising; collusion because it is a legal way to increase market share; price wars because they will increase the profits of firms; advertising because it is less easily duplicated than price cuts.
advertising because it is less easily duplicated than price cuts.