Lory Barile Half

Question 1

Fudenberg & Tirole (1984)

Answer 1

Impact of Strategic Substitutes vs. Complements, Soft and Tough responses of firms in sunk capital investment model. Commitment matters, when accommodating entry firm i capital is determined by firm i profits. When deterring entry, firm i capital is determined by firm j profit. When blockading entry firm i capital is determined by firm i profits; producing monopoly output.

Question 2

Judd (1985)

Answer 2

Pre-emption in Hotelling is only credible with high exit costs, can become an additional strategic barrier to entry for incumbent firms with a first mover advantage

Question 3

Bain (1951)

Answer 3

Analyses profit margins over 42 US sectors from 1936-1940…finds the great disparities due to varied easy of entry

Question 4

Behringer & Filistrucchi (2009)

Answer 4

Newspaper price wars: transaction fees can act as a complementary tool - usually imposed on subsidised side of the market but must be less than the subsidy to ensure joining. Price = Access Price + Transaction Fee

Question 5

Gabsziwicz & Thisse (1979, 1980); Shaked & Sutton (1982, 1983)

Answer 5

Vertical differentiation in Hotelling: Endogenous location leads to extreme locations and excessive differentiation. Regulated prices mute the strategic effect and hence lead to the “principle of minimum differentiation”. Both firms want maximum differential in quality to price higher.

Question 6

Ariely (2008)

Answer 6

“Predictably Irrational” - Behavioural IO

Question 7

Rabin (2013)

Answer 7

Limitedly Rational

Question 8

Simon (1955)

Answer 8

Satisfying behaviour from agents, setting targets that are good enough

Question 9

Azar (2008; 2011; 2014)

Answer 9

Experiments with relative thinking in vertical differentiation. H0: If relative thinking is true, MWTP for higher quality should be an increasing function of price. True! VOQh>VOQl

Laptop - small vs large

Grocery Store - organised vs. not

Bicycle - 5 speed vs. 15 speed

Flights - 3hr connection vs. direct

Implications for Business Strategy:

Locational models - firms increase transport cost perceptions by increasing prices

Multi-Product retailers - compete fiercely on low priced, salient goods to encourage transport

Greater price disperion and variety - differentiation can boost profits if relative thinking occurs

Question 10

Eaton & Wooders (1985)

Answer 10

Show by example if the incumbent price falls by factor 1/2 when located adjacent to new entrant the equilibrium prices and profits fall dramatically to deter entry - due to localised competition

Question 11

Caillaud & Jullien (2001)

Answer 11

Non Favourable vs. Favourable beliefs in two side platform style markets

Question 12

Hotelling (1929)

Answer 12

Horizontal differentiation model

Question 13

Reversed:

Impact of Strategic Substitutes vs. Complements, Soft and Tough responses of firms in sunk capital investment model. Commitment matters, when accommodating entry firm i capital is determined by firm i profits. When deterring entry, firm i capital is determined by firm j profit. When blockading entry firm i capital is determined by firm i profits; producing monopoly output.

Answer 13

Fudenberg & Tirole (1984)

Question 14

Reversed:

Pre-emption in Hotelling is only credible with high exit costs, can become an additional strategic barrier to entry for incumbent firms with a first mover advantage

Answer 14

Judd (1985)

Question 15

Reversed:

Analyses profit margins over 42 US sectors from 1936-1940…finds the great disparities due to varied easy of entry

Answer 15

Bain (1951)

Question 16

Reversed:

Newspaper price wars: transaction fees can act as a complementary tool - usually imposed on subsidised side of the market but must be less than the subsidy to ensure joining. Price = Access Price + Transaction Fee

Answer 16

Behringer & Filistrucchi (2009)

Question 17

Reversed:

Vertical differentiation in Hotelling: Endogenous location leads to extreme locations and excessive differentiation. Regulated prices mute the strategic effect and hence lead to the “principle of minimum differentiation”. Both firms want maximum differential in quality to price higher.

Answer 17

Gabsziwicz & Thisse (1979, 1980); Shaked & Sutton (1982, 1983)

Question 18

Reversed:

“Predictably Irrational” - Behavioural IO

Answer 18

Ariely (2008)

Question 19

Reversed:

Limitedly Rational

Answer 19

Rabin (2013)

Question 20

Reversed:

Satisfying behaviour from agents, setting targets that are good enough

Answer 20

Simon (1955)

Question 21

Reversed:

Show by example if the incumbent price falls by factor 1/2 when located adjacent to new entrant the equilibrium prices and profits fall dramatically to deter entry - due to localised competition

Answer 21

Eaton & Wooders (1985)

Question 22

Reversed:

Non Favourable vs. Favourable beliefs in two side platform style markets

Answer 22

Caillaud & Jullien (2001)

Question 23

Reversed:

Horizontal differentiation model

Answer 23

Hotelling (1929)

Question 24

Reversed:

Experiments with relative thinking in vertical differentiation. H0: If relative thinking is true, MWTP for higher quality should be an increasing function of price. True! VOQh>VOQl

Laptop - small vs large

Grocery Store - organised vs. not

Bicycle - 5 speed vs. 15 speed

Flights - 3hr connection vs. direct

Implications for Business Strategy:

Locational models - firms increase transport cost perceptions by increasing prices

Multi-Product retailers - compete fiercely on low priced, salient goods to encourage transport

Greater price disperion and variety - differentiation can boost profits if relative thinking occurs

Answer 24

Azar (2008; 2011; 2014)