Question 1

Which of the following best explains why oligopolies exist in certain industries?

Accepted Answer

Oligopolies exist because barriers to entry, such as economies of scale, ownership of key inputs, and government-imposed restrictions, prevent new firms from entering the market.

Question 2

Suppose the four-firm concentration ratio in an industry is 60%. What does this indicate about the market structure?

Accepted Answer

The industry is likely an oligopoly.

Question 3

Which of the following is a limitation of the four-firm concentration ratio as a measure of market power?

Accepted Answer

It may not accurately reflect competition if the market definition is too narrow or broad.

Question 4

A firm in an oligopoly faces which of the following strategic situations?

Accepted Answer

Its profits depend on the interactions with other firms, requiring game theory for analysis.

Question 5

In the Netflix-Max duopoly game, both firms have a dominant strategy to charge $15.99. What is the Nash equilibrium in this scenario?

Accepted Answer

Both firms charge $15.99.

Question 6

Why might firms in an oligopoly be tempted to collude, even though it is illegal?

Accepted Answer

Collusion allows firms to achieve higher profits than they would by acting independently.

Question 7

Which of the following best describes a prisoner’s dilemma in the context of oligopoly?

Accepted Answer

A game in which pursuing dominant strategies results in noncooperation that leaves everyone worse off.

Question 8

Suppose Domino’s and Pizza Hut play a repeated pricing game. What is the effect of a price match guarantee?

Accepted Answer

It acts as an enforcement mechanism, discouraging price cuts and stabilizing higher prices.

Question 9

Which of the following is an example of implicit collusion?

Accepted Answer

A firm announces a price change and other firms in the industry match the change.

Question 10

In the OPEC cartel, why is it difficult to maintain collusion among member countries?

Accepted Answer

Some countries have incentives to produce more than their quota, undermining the agreement.

Question 11

In a sequential game, how can a firm deter entry by a potential competitor?

Accepted Answer

By charging a low price, making entry unprofitable for the competitor.

Question 12

What is a subgame-perfect equilibrium?

Accepted Answer

An equilibrium where no player can improve their outcome by changing their decision at any decision node.

Question 13

According to Michael Porter’s Five Competitive Forces Model, which of the following is NOT one of the five forces?

Accepted Answer

Bargaining power of government regulators

Question 14

Which of the following real-world examples best illustrates the threat from substitute goods or services?

Accepted Answer

The rise of digital cameras replacing film cameras.

Question 15

Suppose a large retailer like Walmart can force suppliers to keep prices low. Which competitive force does this illustrate?

Accepted Answer

Bargaining power of buyers

Question 16

If a firm owns a key input required for production, what effect does this have on market structure?

Accepted Answer

It creates a barrier to entry, supporting the existence of an oligopoly.

Question 17

Which of the following equations best represents the condition for profit maximization in both perfect competition and monopolistic competition?

Accepted Answer

$$MR = MC$$

Question 18

A Nash equilibrium is best described as:

Accepted Answer

A situation where each firm chooses the best strategy, given the strategies chosen by the other firms.

Question 19

Which of the following is a credible threat in a sequential game?

Accepted Answer

A threat that is optimal for the player to carry out if the situation arises.

Question 20

Which of the following best explains why large firms do not always survive in the long run, even with high barriers to entry?

Accepted Answer

New entrants, technologies, and products can erode barriers to entry over time.

Ch.14 Oligopoly: Firms in Less Competitive Markets – Study Notes

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