Chapter 11 Flashcards
An industry’s market structure refers to
the number and size of the firms in the industry.
When firms are interdependent,
the profit of one firm depends on how its rivals respond to its strategic decisions.
The only market structure in which there is significant interdependence among firms with regard to their pricing and output decisions is
oligopoly
Which of the following may not characterize an oligopoly?
no market power
The soft drink market is dominated by Coke, Pepsi, and very few other firms. The firms often start price wars. The market can best be classified as
an oligopoly
The correct ranking of degree of market power (from highest to lowest) is
monopoly, oligopoly, monopolistic competition, perfect competition
Each of the following is a determinant of market power, but which is the critical determinant of market power?
the extent of barriers to entry
The concentration ratio measures the
proportion of total output produced by the largest firms in a specific market.
The goal of a company in an oligopoly industry is to
increase market share and profits.
The concentration ratio for an oligopoly is considered
over 60 percent.
Market share is the percentage of total
market output produced by a single firm.
Suppose the larger firm of a duopoly has sales of $900 million and the smaller firm has sales of $100 million. The market share of the larger firm is
90 percent.
When a business advertises that its product has unique features that make it superior to other similar products, it is engaging in
production differentiation
A kinked demand curve indicates that rival oligopolists match all
price reductions.
Which of the following is true about the kink in the demand curve?
It is the result of different rival responses to price increases and reductions.
Game theory is
the study of decision making in situations where strategic interaction occurs between rivals.
Oligopolists have a mutual interest in coordinating production decisions in order to maximize joint
profits
Oligopolists will maximize total profits for all of the firms in the market at the rate of output where
a monopoly firm would be producing if it was maximizing profits
Open and explicit agreements concerning pricing and output shares transform an oligopoly into a
cartel
Sky-High Skywriters raises its price, and the other four firms in the industry raise their prices in response. Coordination in this industry is accomplished by
price leadership
Temporary price reductions intended to alter market shares or drive out competition are referred to as
predatory pricing.
The most common form of nonprice competition is
advertising.
If all of your friends use the same instant messaging service provider, you are likely to use it too. This behavior may create
a network economy
(Table 25.2) Assume there are only four firms in the pool sweeper industry. What is the Herfindahl-Hirschman Index (HHI) for this industry?
4,150
Suppose there are 51 firms in a market. The largest firm has sales of $50 million, and each of the other firms has sales of $1 million. The Herfindahl-Hirshman Index (HHI) of this industry is
2,550
Suppose there are three firms in a market. The largest firm has sales of $50 million, and each of the other two firms has sales of $25 million. The Herfindahl-Hirschman Index (HHI) of this industry is
3,750
